FCA: Intervention Measures Will Save Consumers up to £451m p/a

The Financial Conduct Authority (FCA) has published its annual Sector Views, this Tuesday, in which the regulator has provided an assessment of the risks and potential harm to consumers in the financial services markets.

Although the report covers a wide range of sectors, it’s the retail investment sector that is of particular interest, which covers the distribution of investment products, and retail products sold directly to consumers, such as contracts for difference (CFDs).

According to the regulator, sustained lower interest rates continue to drive investors away from safer asset classes into riskier assets, such as CFDs, mini-bonds, and even into the arms of fraudsters.

FCA: restrictions have saved consumers up to £451m p/a

In the report, the British watchdog highlights that before product intervention measures were implemented on CFDs, there were an estimated 800,000 active client accounts holding a total of £1.5bn in Client Money Client Money Client money refers to the money or margin – which may be any currency in the form of cash, check, draft, or electronic transfer – that a firm receives or holds for a client. Money held by a firm in the form of a stakeholder, which is are not payable on demand or immediately due, also refers to client money. The definition of client money does not apply to money held by businesses that operate in its own name on behalf of a client. Although the client does have to be in agreement before this arr Client money refers to the money or margin – which may be any currency in the form of cash, check, draft, or electronic transfer – that a firm receives or holds for a client. Money held by a firm in the form of a stakeholder, which is are not payable on demand or immediately due, also refers to client money. The definition of client money does not apply to money held by businesses that operate in its own name on behalf of a client. Although the client does have to be in agreement before this arr Read this Term.

“We estimated that, overall, retail clients lost £1.07bn per year trading these products,” the regulator said in the report. “Following the introduction of Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term limits and other investor protection measures, total losses for retail clients of UK firms reduced by £77m between August and October 2018 alone. We estimate that our final rules will save retail consumers between £267m and £451m overall per year.”

However, the FCA outlines that retail consumers are still at risk, as some CFD providers are encouraging their retail clients to opt up to ‘elective professional status,’ or use third-country firms to circumvent the leverage restrictions.

Crypto FOMO

For investments in crypto assets, according to the authority, ‘getting rich quick’ and ‘fear of missing out’ were the key incentives for consumers buying these products.

“Respondents also said they distrusted mainstream media and communications from institutions when considering these investments. They prefer to rely on friends, family and acquaintances, specialised online media and social media. Respondents were confident in their knowledge of the market and/or their ‘instincts’ when making decisions.”