Last month the European Securities and Markets Authority (ESMA) announced temporary measures to restrict the “sale, marketing and distribution” of Contracts for Difference (CFDs) to retail clients.
The measures now apply across the EU from today.
An FCA spokesman said: “We fully support ESMA’s measures, which are designed to protect retail investors.
“In common with other regulators across Europe, we know that other (similar) products can create the same kinds of risks to consumers as CFDs, particularly where they expose the investor to significant leverage.”
The FCA has also reminded firms of existing obligations and said that if a firm is considering marketing, selling or distributing alternative products, it should pay attention to “conduct of business” requirements.
These included rules on the client’s best interests, communications with clients and financial promotions, and suitability and appropriateness. Firms should also consider carefully whether they can satisfy their relevant product governance obligations.
The FCA said that ESMA’s recent Q&A on its product intervention highlighted the risks with CFDs and similar products sold to retail investors.
The regulator added that it was also concerned about similar “substitute” products which could be sold under a variety of labels but share common features with CFDs and may cause large trading losses to retail clients.
The FCA added: “We are concerned that firms may consider getting around ESMA’s measures by selling other similarly complex products to retail clients.
“ESMA’s Q&A makes clear that firms “should pay particular attention to the leverage made available to retail clients and consider whether the product is offered on terms that act in the best interests of the client” for products that have comparable features to CFDs, such as Turbo Certificates.”
The watchdog says it will work with ESMA and other European regulators to monitor and assess the sale of these alternative, speculative products to retail clients and will act if necessary.