London-based spread betting and financial trading provider CMC Markets (LSE: CMCX) has responded to the UK watchdog's review of the contract for difference (CFD) industry, which knocked 4 percent off its share price on Wednesday’s session.
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The Financial Conduct Authority (FCA) said in a letter issued today that a review of 19 CFD firms found shortcomings in several aspects, including new customers’ onboarding through IBs and similar distributors.
The FCA called on CFDs providers in the City to review their businesses after finding that many Affiliates in the industry may not be acting in the best interests of their clients.
The UK’s watchdog has identified risks to inexperienced retail investors posed by marketers with a business model that doesn’t “identify, manage and mitigate potential conflicts of interest.” The FCA added that it found that most providers and distributors in the review were unable to offer a satisfactory definition of their target market or to "explain how they align the needs of this group to the CFD product they offered."
“There is a high risk that firms across the sector are not meeting our rules and expectations when providing and distributing CFDs. As a result, consumers may be at serious risk of harm from poor practices,” the FCA said in a letter to the industry.
CMC Markets issued an update to the market, noting that it has taken steps to address the points raised in the FCA’s review in conjunction with its preparation for implementation of MiFID II rules. The group added that “it continues to focus on its target market and works closely with its small number of distributors to enhance regulatory Compliance .”
Earlier today, IG Group revealed its take on the City’s concerns, saying it has already terminated its relationship with distributors who offer CFDs on a discretionary or advisory basis within the UK and European Union. The London-based firm said in a statement that the FCA review has “no new financial implications for its business.”
