Spread betting has always represented a slightly “grey” area in the world of FX markets. This is namely due to the fact that in the past, regulations had been different from those associated with more concrete forms of investing such as stock trading and managed funds. Another issue which has cast a rather dubious light on spread betting is that traders have the ability to lose substantial sums of money. However, it is pivotal to mention that this is normally the result of erroneous trading strategies as opposed to unscrupulous companies. Nonetheless, we have seen some regulatory changes in the past few years and 2017 may prove to be a milestone in terms of FCA oversight. What does this mean to the average trader?
A Look at the 2014 FX Remediation Programme
As a response to the number of complaints which were put forth by traders based in the United Kingdom, the Financial Conduct Authority (FCA) launched what was known as the FX Remediation Programme (1). This action was primarily designed to target Forex brokerages that were thought to be embracing substandard practices and other unscrupulous activities. As a result, more than 30 large firms were required to adjust their management structure as well as how they dealt with clients. It should be noted here that these companies were said to represent approximately 70 per cent of the FX market within the United Kingdom.
The FCA also fined banks a total of £1.1 billion pounds for failing to spot discrepancies with the dealings of third-party brokerage firms. As a result of these actions, the Financial Conduct Authority believed that the entire marketplace was substantially improved. Individual investors could likewise be assured that they would be enjoy more transparent dealings with online spread betting portals.
Even in 2014, the FCA realised that more actions would likely need to be taken in the future; particularly as a result of the rise of newer firms which were not subject to such scrutiny in the past. This is the main reason for the implementation of what is to be known as the FX Global Code of Conduct. This compendium is expected to be released in May 2017. It is to be used as an addendum to the existing 2014 FX Remediation Programme. The documents will be presented by the Foreign Exchange Working Group (FXWG). It will be the responsibility of individual Forex and spread betting firms to enact any changes which may be necessary. If not, they could face fines and other disciplinary actions.
It is thought that the FX Global Code of Conduct will represent an extension of the points that were touched upon in 2014 (2). Some of the major topics should include:
- The risks and related controls regarding day-to-day activities.
- The required audits and compliance concerns.
- Managing any conflicts of interest.
- Risk disclosure to clients.
As a result of these regulations, any spread betting firms are said to be prohibited from providing investment advice (such as executing a trade involved within a specific asset) to the client.
Significance to the Spread Betting Enthusiast
This is all very good news for the entire industry of spread betting. Tighter regulations equate to higher levels of transparency. So, investors of all levels can be assured that they are in good hands when dealing with large firms such as CMC Markets. Although the exact details of the Global Code of Conduct are yet to be revealed, we can be confident that the FCA is keeping the needs of the trader in mind.