Dear Chief Executive | Release Date: 1st December 2022
To read a longer summary of this Dear Chief Executive letter, click here.
To access the original FCA document, click here.
Short Summary
The FCA’s “Contracts for Difference (CFD) Strategy” letter to CEOs details the regulatory framework and expectations for firms operating within the CFD sector, including spread bets and rolling spot foreign exchange. This sector, comprising both substantial and smaller firms, faces significant scrutiny due to the inherent risks associated with high-risk derivative products that impact consumer protection and market integrity.
Key issues addressed include the exploitation of retail consumers through scams and pressure sales tactics, the circumvention of FCA rules by upgrading consumers to ‘elective professional’ status inappropriately, and the misuse of affiliate marketers who often target less financially literate, younger consumers. The letter emphasises the regulatory obligations under the Senior Managers and Certification Regime (SMCR), requiring CEOs to ensure compliance and rectify any breaches promptly.
The FCA outlines its strategy to tackle these issues through identifying, intervening, and enforcing actions against non-compliance and harmful practices. This includes enhanced scrutiny at the regulatory gateway for new authorisations and stringent actions against firms exhibiting poor behaviours or regulatory breaches.
Furthermore, the letter highlights the expectations under the new Consumer Duty, coming into effect on July 31, 2023, which mandates firms to act in good faith and ensure that their business models and practices yield good outcomes for retail customers. This encompasses considerations around conflicts of interest, pricing, customer service, and clear communication, especially in the context of current market volatility and economic challenges.
Firms are urged to rigorously assess and manage inherent conflicts of interest, ensure compliance with client asset protection rules, and maintain operational resilience. The FCA expects all firms to discuss the implications of this letter and take necessary actions to align with regulatory expectations, preparing for further communication on the impact of the Consumer Duty specific to CFD providers. CEOs are advised to engage with the FCA’s dedicated Supervision Hub for any queries or urgent issues related to strategic firm management.