FCA crackdown hits spread-betting firms

Spread-betting firms saw more than £1bn wiped off their market value this week after the UK’s financial services regulator announced new rules for the industry.

Ben Judge
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published
in Features

Spread-betting firms saw more than £1bn wiped off their market value this week after the Financial Conduct Authority (FCA), the UK's financial services regulator, announced new rules for the industry. Shares in IG, the UK's biggest spread-betting firm, fell more than 38%, while CMC Markets fell by 35%, and Plus500 lost 30%.

Spread betting involves speculating on short-term market movements. Clients often employ "margin", meaning that they only put down part of the value of their position, borrowing the rest from the spread-betting firm. The FCA says it has "serious concerns" that more and more people use margin with little understanding of the risks it carries. This could lead to "rapid, large and unexpected losses".

The FCA's sample of spread-betting customers found that 82% has lost money. That "might not be a problem if their products were being sold as a form of leisure", like having a flutter on the horses, says Simon Goodley in The Guardian. But spread betting is "nowhere near as much fun" and vastly more complicated.

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Hence the FCA wants firms to cap clients' leverage (the amount of borrowed money they use) at a maximum of 50 times their capital, with lower limits for clients with less than 12 months' experience. It will also ban introductory and other bonuses that encourage clients to trade, and force firms to disclose details of ratios of profits to losses among their clients

Ben Judge
Ben Judge

Ben studied modern languages at London University's Queen Mary College. After dabbling unhappily in local government finance for a while, he went to work for The Scotsman newspaper in Edinburgh. The launch of the paper's website, scotsman.com, in the early years of the dotcom craze, saw Ben move online to manage the Business and Motors channels before becoming deputy editor with responsibility for all aspects of online production for The Scotsman, Scotland on Sunday and the Edinburgh Evening News websites, along with the papers' Edinburgh Festivals website.

Ben joined MoneyWeek as website editor in 2008, just as the Great Financial Crisis was brewing. He has written extensively for the website and magazine, with a particular emphasis on alternative finance and fintech, including blockchain and bitcoin. 

As an early adopter of bitcoin, Ben bought when the price was under $200, but went on to spend it all on foolish fripperies.

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