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knowledge 8 March 2017 |

Selling CFDs to Retail Investors – To Ban or to Protect?

CFDs, also known as contracts for difference, have been on the regulatory radar for some time, in particular because of concerns regarding the risks they pose for retail investors.

In the latest development, the Central Bank of Ireland has published a consultation here soliciting views on whether it should:

  • prohibit the sale or distribution of CFDs, including spread bets and rolling spot forex contracts, to retail clients in and from Ireland; or
  • impose enhanced investor protection measures including a limitation on leverage and a requirement that retail clients may not lose more than the amount(s) deposited on a per-position basis.

The Central Bank’s concerns regarding CFDs are not new and follow a number of thematic inspections of CFD providers over the past years. These concerns are also widely shared by other regulators. In particular, in October 2016, the European Securities and Markets Authority (ESMA) published an updated version of its Q&A relating to the provision of CFDs and other speculative products to retail investors under MiFID here. The Q&A addresses:

  • the use of trading benefits when offering CFDs or other speculative products;
  • the withdrawal of funds from trading accounts;
  • the use of leverage when offering CFDs or other leveraged products to retail clients; and
  • best execution obligations for firms offering CFDs or other speculative products to retail clients.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.