Spread betting firms face sanction

THE Central Bank is considering taking enforcement action against a number of non-compliant spread betting firms — which could see fines of up to €5m being imposed.

The development follows an inspection of financial spread betting firms and contracts for difference (CFDs), which found that none of the four firms investigated were fully compliant with the MiFID (markets in financial instruments directive) regulations.

The Central Bank said that a number of firms had “a particularly low level of compliance”, while less serious breaches were found in others. It added that all relevant companies have been informed of the findings and that enforcement action could be taken in some cases. However, it also added that the process is still in its early stages and stressed that the imposition of fines has not been decided upon as yet.

“Consumers need to be made fully aware of the complexity and very high risks of CFD and financial spread betting before making investment decisions,” according to Sharon Donnery, head of consumer protection at the Central Bank.

“Losses can be substantial and people should know what they’re getting into. We’re concerned that none of the firms inspected were fully compliant with the regulations in this area. 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.

The Central Bank’s main findings were that in some cases — around 80 files were reviewed, in total, across the four firms investigated — there were inadequacies in terms of marketing and risk disclosure.

The marketing material used by firms was “misleading” and not sufficiently balanced to outline both the benefits and risks of CFD and financial spread betting, as required by the regulations. Risk warnings and disclosures were inadequate in some cases.

“For example, risk warnings should state, where applicable, that losses could exceed initial investment and should also refer to the effects of price volatility,” the Central Bank added.