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A possible loophole in FCA CFD crackdown

IG Group has highlighted potential flaw in the FCA's crackdown on contracts for difference.

A possible loophole in FCA CFD crackdown

IG Group has noted a possible flaw in the Financial Conduct Authority's (FCA) crackdown on contracts for difference (CFDS

Spreadbetting firms have come under intense pressure today, losing millions on their market values, after the watchdog started a consultation process on the CFD market. 

The FCA said it had identified a number of 'serious concerns' after monitoring the sector for six years. 

The regulator has unveiled plans to impose caps on leverage for retail clients, force disclosure of profit-loss ratios on client accounts and ban the uses of opening bonuses to promote products.

'This will result in a much smaller, less profitable CFD and spread-betting industry,' said analysts at Liberum.

However IG Group, which has plunged by over 40% to 467.2p,  noted that perhaps the regulator has not created a level playing field.

'The FCA’s proposals do not appear to directly apply to firms operating from outside the UK offering CFDs and binaries to clients in the UK on a cross-border services passport from another EU member state,' the online trading platform said in a statement. 

The regulator admits that the policy measure would not directly apply to these types of firms because according to EU law they remain under the responsibility of their home state's National Competent Authorities. 

However, as part of the consultation, the FCA has proposed to put a restriction on financial promotions for firms that do not adopt the requirements. 

IG said it will carefully consider the implications of the FCA consultation paper and what courses of action are available to it before the consultation concludes on 7 March. 

'IG firmly believes in robust and proportionate regulatory oversight of the CFD sector in the UK and Europe,' it said. 

'[The company] recognises that there are shortcomings in the approach to the marketing of CFDs and binaries by certain firms, often operating from outside the UK.

'The company has operated and will continue to operate to the highest standards in the industry, and its initial view is that certain of the FCA proposals could enhance client outcomes.' 

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