FCA says CFD providers not providing value for money

(Sharecast News) - Britain's financial regulator said contracts for difference (CFD) providers had failed to take consumer complaints or satisfaction into account as part of fair value assessments, despite stricter standards being introduced two years ago.

The Financial Conduct Authority said some providers had also applied overnight funding charges without clear justification and adequate disclosure with little benefit to consumers. It also warned it would take action against those firms that failed to meet required standards.

Some firms have trimmed fee structures and have stopped inexperienced investors, who might not be able to stomach heavy losses, from trading CFDs at all.

"The Consumer Duty raises the bar for consumer protection across financial services, and CFD providers must meet those standards," Mark Francis, director of sell-side markets at the FCA, said after a review.

"CFDs are complex, risky products and it is vital that providers act to deliver good outcomes for customers, communicate clearly and provide fair value. It is also important that consumers shop around and ensure they fully understand the investment and its costs."

The contracts are a way to bet on the price of a share or asset moving up or down without owning it and carry a "considerable risk of substantial losses", the FCA said.

Under the Consumer Duty, CFD firms must ensure the price a consumer pays is reasonable compared to the overall benefits they can reasonably expect to receive, it added.

Reporting by Frank Prenesti for Sharecast.com