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Here to help with Regulation and Compliance
Regulator targets Spread Betting Firms following review
4th February 2016
Earlier this week the regulator issued a rare ‘Dear CEO’ letter to a number of CFD firms and Spread Betting providers warning those within the sector to review their processes.
This was in response to a FCA regulatory review of a sample of CFD firms, the results of which found poor controls over information and due diligence along with inadequate customer assessments common place.
Read more on the FCA’s findings here:
CFD Firms to Review Client On-boarding following Dear CEO Letter
The FCA’s most recent scrutiny of the CFD industry seems congruent to an investigation previously conducted by the Bank of Ireland back in 2011 when four CFD and spread betting companies were also found to have inadequate procedures in place.
Following the regulator’s warning and concerns, CEO’s of CFD and Spread Betting Firms should now prepare to review their firms’ processes to ensure they fully comply with their regulatory requirements.
If your firm offers clients Contracts for Differences (CFDs) including Spread Bets and Rolling Spot Forex and would like any assistance in reviewing your existing procedures please contact our experienced Compliance Consultants for a free no obligation chat.
More about CFDs: What is Spread Betting?
Unlike other forms of betting, such as sports betting, Spread Betting is a recognised as an investment under the Financial Services and Markets Act 2000 and is a type of Contract for Difference (CFD).
CFDs and Spread Bets offer investors the prospect of very high returns on investment, however they are seen by the regulator to carry a higher level of risk.
With more traditional gambling, the person placing the bet only risks losing their initial bet. However with CFDs the investor is able to lose more than their original investment and as such Spread Betting is seen to carry a higher level of risk compared in comparison to other forms of betting.
Contracts for Difference, or CFDs are a way to wager upon movements in price without actually taking ownership of a particular share (that would result in stamp duties).
A Contract for Difference, or CFD, is a contract between an investor and a business. One the contract concludes, the investor receives the difference between the opening and closing price of an asset. If the difference is negative, then the investor will have to pay the difference.
Spread betting however, allows an investor to speculate on markets and thus make profits or losses based upon their investment and how much the price may move.
Spread Betting Providers Under Regulatory Scrutiny
Contracts for Difference
(FCA Glossary Extract 02Feb16)
contract for differences:
the investment, specified in article 85 of the Regulated Activities Order (Contracts for differences etc), which is in summary ights under:
i. (a) a contract for differences; or
ii. (b) any other contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in:
(i) the value or price of property of any description; or
(ii) an index or other factor designated for that purpose in the contract; or
iii. (c) a derivative instrument for the transfer of credit risk to which article 85(3) of the Regulated Activities Order applies.
Relevant Resources:
Client Take-on Support Services for CFD Firms
If your firm offers CFDs, Spread Bets or Rolling Spot FX to clients and would like help in reviewing your client on-boarding procedures or if you require any other regulatory compliance support, please contact our experienced Compliance Consultants for a free no obligation chat.
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CFD Client On-Boarding Review Support
Our compliance consultants are specialists in the financial markets, offering a good understanding of the commercial as well as the regulatory aspects of Derivatives Brokers including Forex, CFD and Spread Betting providers amongst others.
Our Regulatory professionals can assist with any regulatory requirement you may face and can assist with:
• Anti-money laundering procedures and controls • Appropriateness assessments
• Client on-boarding procedures • Client Due diligence
• Appropriateness assessments • Client Categorisation
• Risk Disclosures and communications to clients
If your firm offers clients Contracts for Differences (CFDs) including Spread Bets and Rolling Spot Forex and would like any assistance in reviewing your existing procedures please contact our experienced Compliance Consultants for a free no obligation chat.