There are “areas of serious concern” in the UK’s contracts for differences (CFDs) market, according to the UK’s financial watchdog following its latest review of the sector.
The warning from the Financial Conduct Authority (FCA) sent shares of CFD and spreadbetting companies tumbling.
Shares in CMC Markets, IG Group and Plus500 fell by more than 7% in early morning trading.
The FCA said it had sent a letter to all providers and distributors of these products to retail customers to ensure they “pay due regard to the interests of customers and treat them fairly”.
“We believe there is a high risk that firms across the sector are not meeting our rules and expectations when providing and distributing CFDs. As a result, consumers may be at serious risk of harm from poor practices in this sector,” the FCA said.
CFDs let investors speculate on both the direction a share price, currency or other financial product will move, and the extent of the change in price, and there is no stamp duty.