The proposed rules would apply to firms working in or from the UK.
The FCA’s concerns arise from the risks attached to these types of products and by the “poor conduct of firms selling them”.
The trading losses that have affected consumers domestically and internationally have prompted the regulator to plan a stricter set of rules.
The proposal draws upon the European Securities and Market Authority’s interventions – deemed “same in substance” – and the EU-wide temporary restrictions on such products.
The FCA is also looking to include closely substitutable products (such as the ‘turbo-certificates’ – products that allow consumers to benefit from market fluctuations in both ways) in its proposal.
If the FCA rules were to be confirmed, they would have permanent effect.
In relation to CFDs, the FCA is proposing firms to “limit leverage to between 30:1 and 2:1 by collecting minimum margin as a percentage of the overall exposure”; close a customer’s position if their funds fall to 50% of the margin needed to keep their position open on the CFD account.
Other implementations would include a protection guarantee so that the client won’t lose more than the total funds on the CFD account; a stop to offering monetary and non-monetary inducements to encourage trading; and provide a standardised risk warning so that firms would have to tell their customers the percentage of the client accounts that make losses.
FCA is very concerned
The FCA’s aim is to reduce annual losses by between £267.4m ($341m €300m) to £450.7m ($575m €506m). The permanent ban on binary option is believed to be saving retail consumers £17m a year.
Christopher Woolard, executive director of strategy & competition at the FCA said: “We remain very concerned about the harm to retail consumers that’s being caused by the design and distribution of some complex derivative products.
“This is despite focused supervisory work over several years to try and improve firms’ conduct. Today’s proposals will enhance consumer protection by banning binary options and ensuring CFDs are only marketed and sold to consumers who understand the risks from trading these types of products.”
The proposal will be open for feedback until 7 February 2019.