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FCA to crack down over high-risk 'contract for difference' products

Britain's financial watchdog is proposing stricter rules on financial spread betting firms after concluding that investors are racking up heavy losses.

The Financial Conduct Authority (FCA) is putting forward plans to clamp down on firms selling "contract for difference" (CFD) products to retail customers.

These include spread bets and rolling spot foreign exchange products offered by investment firms.

An analysis carried out by the FCA found that 82% of clients lost money on such products.

The FCA's executive director of strategy and competition, Christopher Woolard, said: "We have serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding of the risks involved, and as a result can incur rapid, large and unexpected losses.

"We are introducing stricter rules for CFD products to ensure the sector addresses the shortcomings identified, and that firms make sure that retail clients are aware of the high risks involved in trading these complex products."

The watchdog's proposals include introducing standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts by all providers to "better illustrate the risks and historical performance of products".

The FCA also wants to prevent providers from using any form of trading or account opening bonuses or benefits to promote products.

Shares in spread betting firms plummeted on the news.

CMC Markets was down 24%, IG Group fell 22.5% and Plus 500 dropped 36% in morning trading.

Plus 500 has warned that the new rules will result in a "material operational and financial impact" for the company.

"The company believes that the topics covered in the note will have a material operational and financial impact on the UK regulated subsidiary which represents approximately 20% of the group's revenues," it said in a statement.

IG Group, meanwhile, said that it recognises shortcomings in the approach to the marketing of CFDs, adding that it will "carefully consider" the implications of the FCA consultation paper.

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