FINANCIAL SPREAD-BETTING firms could face enforcement action from the Financial Regulator after a Central Bank inspection uncovered compliance failures at four firms offering financial spread-betting and contracts for difference (CFD) products.
The inquiry, conducted between March and May this year, found none of the firms inspected was fully compliant with the relevant Markets in Financial Instruments Directive (MiFID) legislation. A number of firms had a particularly low level of compliance, while others were found guilty of less serious breaches.
Some 80 files were reviewed for the inquiry. Sanctions, including monetary fines, may be taken by the Financial Regulator against the firms.
In total, 29 companies are sanctioned by the Central Bank to offer financial spread-betting and CFD products in Ireland.
The inquiry was one of a number of “themed inspections” carried out by the Central Bank periodically. It was initiated by the bank due to the growing number of retail clients engaged with spread-betting and CFDs – both highly leveraged products.
The breaches identified by the inquiry included the use of misleading marketing material, inadequate risk disclosures, and an inadequate assessment of the appropriateness of the products for clients.
While MiFID regulation requires providers to take account of the client’s knowledge and experience to assess whether the product or service is appropriate, the inspection found that in some cases these assessments were not carried out.
Similarly, the regulator found the marketing material used by some firms was misleading, with some promotions found to have shown the benefits of CFDs and spread-betting compared to share trading, without setting out the relative disadvantages.
Sharon Donnery, head of consumer protection at the Central Bank, said the bank was concerned none of the firms inspected was fully compliant with regulations. “In particular, some of these investment firms are failing to fully inform and provide adequate warnings to consumers of the risks that CFD and financial spread-betting carries before they begin trading.”
She added that consumers need to be made fully aware of the complexity and very high risks of CFD and financial spread-betting before making investment decisions.
“Losses can be substantial, and people should know what they are getting into,” she said.
