Inspection by Central Bank of Ireland finds 75% of CFD traders lost money


A themed inspection by the Central Bank of Ireland (CBI) has shown that the vast majority of CFD traders incur losses.

The check consisted of a desk based review of all active investment and stockbroking firms providing CFD products (including spread betting) which are regulated by the Central Bank or operating in Ireland on a branch basis. The desk based review was followed up by onsite inspections in four firms.

The themed inspection covered retail clients who invested in CFDs during 2013 and 2014. More than 39,000 retail clients invested in CFDs with Irish-based investment and stockbroking firms during this period.

Approximately 75% of these clients suffered a loss, of which the average size was €6,900 ($7,357).

Regarding the compliance of the firms subject to the inspection, the CBI concluded that some met the requirements but others failed to do so, especially when it came to keeping the relevant records on complaints handling. In several cases, the marketing materials were not presenting the risks and benefits of CFDs in a balanced way.

Where the Central Bank has identified risks to consumers, due to the issues outlined above, formal supervisory requirements have been imposed on the relevant firms. The regulator has also sent a letter to all MiFID firms, detailing the findings of this inspection together with recommendations to improve their compliance arrangements, where relevant.

In response to the inspection findings, Mr Bernard Sheridan, CBI’s Director of Consumer Protection, said:

“One of our key priorities for 2015 was to examine the sale of investment products which may pose a risk to consumers. One such product is a CFD and, following a themed inspection of the CFD market, we identified several issues in relation to execution-only sales. It is our view that CFDs are unsuitable for investors with a low-risk appetite. This is due to the volatile nature of the CFD market, coupled with the potential for a consumer to lose more than the initial investment. Consumers need to be made fully aware of the high-risk and complex nature of CFDs before making investment decisions”.

You can view the official announcement from the CBI by clicking here.

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Inspection by Central Bank of Ireland finds 75% of CFD traders lost money

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