The UK's spread betters are in purgatory at the moment. The Financial Conduct Authority (FCA) has proposed a range of restrictions on companies selling contracts for difference (CFD) to retail clients. The most hard-hitting of the proposals is to limit the amount of leverage these customers can trade with to 50 times the value they have deposited in their account. As such, the investment case for the CFD sector has become a whole lot more uncertain and, unsurprisingly, the three main UK-listed providers - IG Group (IGG), CMC Markets (CMCX) and Plus500 (PLUS) - suffered heavy falls in the value of their shares following the announcement.
In its most recent review of the CFD sector, the FCA found shortcomings in the way in which providers assessed the appropriateness of clients to trade, as well as the anti-money-laundering checks being carried out. What's more, the regulator found that more than 80 per cent of clients lost money on these products, with the average result per client being a loss of £2,200.
The FCA is not the only European regulator to crack down on the CFD sector. In August, French stock market regulator AMF announced plans to ban the advertising of binary bets, as well as CFDs and currency products with leverage greater than 5:1, by any electronic means such as email and website banners. Meanwhile, the German regulator has proposed the marketing, distribution and sales of CFDs to retail clients may only be carried out if they are not at risk of losing more than the amount deposited in their account.