The UK’s top financial watchdog has publicly warned spread betting firms that they appear to be “failing to do enough to prevent financial crime.”
On Tuesday, the Financial Conduct Authority (FCA) issued a ‘Dear CEO letter’ to firms offering spread betting, contracts for difference and ‘rolling spot’ foreign exchange products (all of which the FCA refers to as CFD). The letter says companies aren’t doing a good enough job educating consumers on the risks of their wagers.
Unlike standard win/loss bets placed with traditional bookies, CFD bettors can face losses that are multiples of their original stakes. A review of 10 CFD companies conducted by the FCA found that most were failing to conduct proper assessments of a bettor’s ability to withstand his or her wagering losses, and that the risk warnings given to these customers were inadequate.
The FCA’s review also determined that firms offering CFD products were falling down in their anti-money laundering (AML) compliance. The 10 firms studied in the review were found to be doing an adequate AML job for standard-risk clients but were failing to conduct enhanced due diligence on clients deemed high-risk.
CMC MARKETS TO PROCEED WITH IPO
Neither the FCA’s public shaming nor the topsy-turvy financial markets are proving enough to deter spread betting firm CMC Markets from proceeding with its planned public floatation.
Peter Cruddas, the former Conservative party treasurer who founded CMC in 1989, has decided to sell £200m worth of shares based on his bankers’ belief that there is sufficient demand, provided that the shares are issued at the low end of the price range.
Assuming the price doesn’t rise before Thursday’s float, the sale will value the company at around £680m, well below the £1b valuation the company was expected to garner a few years ago. But Cruddas expects the price to rise post-float and noted that volatile markets actually work in a CFD company’s favor.