Response to FCA and ESMA announcements
IG Group Holdings plc (IG, the Group, the Company), a global leader in online trading, notes the Financial Conduct Authority (FCA) announcements today on CP 16/40 and on its findings from its review of appropriateness assessments for the sale of CFDs. The Company also notes that the European Securities and Markets Authority (ESMA) has today released a general statement on product intervention concerning CFDs and other speculative products.
The FCA has decided to delay making final conduct rules until ESMA has determined whether to use the product intervention powers that will be available to it under MiFIR. The Company supports FCA’s decision to delay, in order to achieve harmonisation across Europe for the regulation of CFDs and ensure that any measures are informed by clear and robust data analysis. ESMA has indicated it is considering a range of product intervention measures such as leverage restrictions, guaranteed limits on client losses and/or restrictions on the marketing and distribution of these products. The Company has been engaging with ESMA, FCA, several European National Competent Authorities (NCA), and other European bodies such as the European Commission and Parliament, regarding potential measures for improving consumer outcomes for CFDs.
IG has delivered a sustainable business for over 40 years. Key to achieving this has been IG’s strategy of differentiation within the industry through its adherence to the highest regulatory standards and its focus on good outcomes for clients. The Company is therefore fully supportive of FCA and ESMA in their intentions to improve consumer outcomes across the industry and believes that consumers will benefit from the measures currently being discussed and from harmonisation of regulation. The Company also acknowledges the commercial benefit of having all participants in the industry operating on a level playing field.
In their announcements this morning, both FCA and ESMA have referenced recent ESMA Q&As on good practices within the CFD industry. The Company agrees with FCA and ESMA that there are some people trading CFDs for whom the product is not suitable. IG believes the practices outlined by FCA and ESMA are essential to enable good consumer outcomes and has already adopted the Q&A recommendations. For example, on appropriateness (i.e. the assessment that firms must make to determine whether they are onboarding clients with a sufficient level of knowledge and experience to understand the risks of CFDs), the Company has enhanced its assessment process over the past year to:
- Test the knowledge of applicants who have limited experience trading derivatives;
- Require applicants to give detailed information regarding their trading history;
- Reject applicants for whom CFDs are not appropriate;
- Reject applicants who do not have sufficient wealth to trade CFDs;
- Require appropriate clients with limited experience to use Limited Risk Accounts. Limited Risk Accounts have already been endorsed at NCA level, including by the German and French regulators.
This is consistent with the direction outlined by FCA today, and with ESMA’s Q&A on appropriateness. We would welcome this standard becoming the required standard within the European industry.
The Company also notes FCA’s comment that data suggests that lower leverage produces better outcomes for clients. The Company already sets leverage at responsible levels that do not cause poor outcomes. The Company will continue to engage with FCA and ESMA to achieve the right balance.
IG has a great track record of innovation and flexibility, and has technology and skills it can deploy to make the most of regulatory change. In the Company’s experience, when tighter regulation has been applied appropriately, client outcomes have improved, the industry has become more sustainable, and compliant providers have benefitted over the longer term.
For further information, please contact:
Head of Investor Relations and Corporate Affairs
020 7573 0026 firstname.lastname@example.org
020 7573 0727 email@example.com
Neil Doyle / Ed Berry
020 3727 1141/1046