LONDON (Reuters) - Britain’s markets watchdog proposed on Friday making temporary curbs on the sale of complex derivative products to retail customers permanent.
EU regulators agreed in June to a temporary ban on the sale of “binary options” and imposed restrictions on the sale of contracts for difference (CFDs), aiming to protect retail investors from heavy losses.
Britain’s Financial Conduct Authority (FCA), in a statement, also proposed applying the restrictions to similar products such as “turbo-certificates” in the UK, widening the scope of the current EU curbs to stop variations getting round the restrictions.
Binary options allow people to bet on whether the price of a share, currency or index will go up or down within a certain timeframe. CFDs give an investor exposure to price movements in securities without owning the underlying asset.
“The FCA is acting to tackle widespread concerns about the inherent risks of these products, and the poor conduct of the firms selling them, that has led to harm to consumers in the UK and internationally through large and unexpected trading losses,” the watchdog said.
Germany’s financial watchdog said last month that it also plans to ban private investors from buying binary options.
There were around 100 authorised providers of CFDs in Britain in 2017, with more than 800,000 retail client accounts holding over 1.5 billion pounds, the FCA said.
Shares in Plus500 (PLUSP.L), an online trading platform, fell as much as 4 percent in opening trade, but later reversed course to rise 1.7 percent by 0930 GMT. Rivals IG Group Holdings (IGG.L) and CMC Markets Plc (CMCX.L) were also trading higher.
IG Group said the proposals had been anticipated and wouldn’t change its revenue outlook. CMC said over 40 percent of its UK and European revenue is generate by professional, rather than retail customers.
Curbs on CFDs could cut annual losses for retail consumers sold such products by firms in Britain by 267.4 million pounds to 450.7 million pounds, the FCA said.
A permanent ban on binary options could save retail consumers up to 17 million pounds a year, and may reduce the risk of fraud by unauthorised entities claiming to offer these products, it added.
The FCA will consult separately in early 2019 on a potential ban on the sale of derivative products referencing cryptocurrencies, including CFDs, to retail consumers.
EU regulators have said their ban on selling binary options would be extended in January for three months.
The FCA will publish final rules by March 2019, when Britain is due to leave the EU.
It is unclear if the British parliament will approve a transition period next week that would mean EU rules remain in force until the end of 2020.
The FCA said that if there is no transition period and it was unable to finalise its proposed rules by March, it would likely adopt emergency measures to replicate the bloc’s curbs so that investors are still protected.
The FCA is also seeking feedback on whether its proposed curbs on CFDs should be extended to other complex retail derivative products, including futures contracts.
Reporting By Huw Jones; Editing by Susan Fenton