On September 4, 2017, the Financial Conduct Authority (FCA) in the UK published a consultation paper outlining its proposed changes to the Retail Investment Regulations. The FCA's aim is to create a comprehensive overhaul of the current regulated investment regime, based on the EU, with a single set of rules applied to all retail investments. This proposal affects how various types of financial businesses (including Forex and CFD brokers) deal with retail clients. This change represents a major alteration to the regulatory environment for brokers operating in the UK.
What Happened
• The FCA proposed creating a new simplified, more transparent framework to replace the EU-based disclosure regime, with a single set of rules for retail investors.
• The FCA proposed providing updated criteria to determine if an individual is considered to be a 'professional investor' and therefore allows certain high-net-worth individuals to access professional investor status and opt out of retail protections under more stringent conditions.
• The FCA has proposed additional measures to help bolster consumer protections, restrict the use of misleading or “gamified” features in trading apps, and clearly differentiate between financial advice and financial marketing.
Why it Matters
• Forex and CFD brokers operating in the UK will be required to adapt their onboarding, marketing, and disclosure practices in order to comply with the new framework.
• Retail traders in the UK will benefit from increased clarity regarding their information, improved protection from harmful practices, and will be less likely to be targeted by aggressive sales tactics.
• The Reforms point towards the continuing evolution of a regulatory system following Brexit, with an increased focus on protection and independent regulation in the UK.
WikiLix Insight
These changes to the regulation of retail investment highlight an increasing level of complexity for global brokers, while those that can demonstrate a healthy culture of compliance may find themselves at an advantage, whereas brokers relying on high-risk sales practices may find themselves at a disadvantage. Both brokers and traders will have to actively monitor FCA updates on how to ensure they remain compliant, as the regulatory landscape becomes increasingly differentiated across the major markets for financial products.
