FCA Urges CEOs to Review Company Compliance with CFD Products

The UK Financial Conduct Authority ("FCA") found "several areas of concern" in its review of a sample of ten firms that offered "contract-for-difference" products ("CFDs") to clients on a non-advised basis. The FCA conveyed its findings and concerns in a letter to nearly 100 regulated companies that offer CFDs.

Specifically, the FCA determined that:

• the sample firms were unable to assess appropriateness and did not alert clients adequately through risk warnings when CFDs were not appropriate;

• the sample firms did not have anti-money laundering ("AML") systems and controls in place that were "proportionate to the nature, scale and complexity of their activities";

• the sample firms did not consider a range of factors in AML risk assessments and instead "focused on jurisdictional risk, limiting their effectiveness";

• eight out of ten sample firms classified all of their clients as "retail" to provide the "highest level of protection."

The FCA expressed concern about the "poor results . . . observed across [the] sample" and warned of the "high risk that CFD providers industry-wide . . . [are taking by] . . . not meeting the requirements of the rules." The FCA urged firms to ensure that their client "take-on" process meets the requirements and to consider whether they are in compliance with all other FCA requirements concerning the sales of CFD products.