The Financial Conduct Authority (FCA) has warned that investors trading Contracts for Difference (CFDs) could be putting themselves at risk by giving up vital consumer protections.
The regulator said some firms are using high-pressure tactics to persuade clients to classify themselves as professional investors, which removes safeguards designed to limit losses and prevent excessive risk-taking.
Retail client protections, including leverage limits and loss caps, are estimated to save nearly 400,000 investors a year from losing more than their original stake and provide between £267m and £451m worth of protection.
The FCA also highlighted growing risks from “finfluencers” promoting unregulated offshore firms, often promising unrealistic returns through copy trading or paid signal groups.
One firm alone was found to have caused losses of £75m to 90,000 people over four years.
“CFDs are complex, high-risk products,” said Mark Francis, director of sell-side markets at the FCA.
“We are concerned that some firms are trying to get people to invest more than they can afford to lose. Investors should be very wary of CFD firms attempting to bypass our rules and of those on social media touting investments that look too good to be true.”
The regulator reminded firms that under the Consumer Duty, clients must receive communications they understand and products that offer fair value.
It warned that enforcement action will follow against firms breaching retail client rules or promoting offshore providers without equivalent protections.
