The Central Bank has recently completed a thematic inspection in relation to Contracts for Difference (CFDs). The themed inspection assessed firms’ product oversight and governance processes in relation to CFDs and specifically sought to assess how firms are delivering fair outcomes for consumers. The Central Bank has concluded that CFDs are not suitable for investors who have a low risk appetite. The inspection revealed that of the 39,000 retail investors who invested in CFDs, 75% made a loss; with the average loss being €6,900.
As a result of the thematic review, the Central Bank as identified the following issues:
Assessment of Appropriateness - Firms are required to review their current appropriateness assessment to ensure that the information / assessment conducted in relation to a client’s suitability / appropriateness is reflective of the client’s prior knowledge and experience. In the event that the client’s prior knowledge and experience is not considered to be sufficient, firms must ensure that appropriate risk warnings are in place. Educational or training material offered by a firm cannot be the only barometer for assessing a client’s knowledge and experience.
Complaints Process - Firms are reminded of the requirements of the MiFID Regulations, and expects firms to meet the requirements of the Consumer Protection Code in relation to the complaints handling process, and should review current process and procedures to ensure they are in compliance.
Marketing Material – The Central Bank requires that firms review the requirements in relation to marketing material following its finding that marketing material was not always presented in a sufficiently balanced way to outline both the risks and benefits associated with CFDs. Furthermore, risk warnings were not always sufficiently prominent as required under the MiFID Regulations.