In sympathy with the European Securities and Markets Authority, which took a severe dislike to contracts for differences in 2016, the UK's Financial Conduct Authority has decided to restrict their use most drastically. In doing so, it has been guilty of some typical British 'gold plating.'

A contract for difference or CFD is a complex derivative by which the seller promises to pay the buyer the difference between the current value of an asset and its value at contract time. If the difference is negative, the buyer pays the seller instead. CFDs are typically offered to retail consumers through online trading platforms. The FCA expects retail consumers, high-net-worth and otherwise, to save between £267 million and £451 million per annum from its measures.

The FCA is requiring firms that offer contracts for differences and options like them (ESMA never banned or restricted such options - this is more British 'gold plating') to retail consumers to:

• limit leverage to between 30:1 and 2:1, depending on the volatility of the underlying asset;
• close out a customer’s position when his funds fall to 50% of the margin needed to maintain his open positions on his CFD account;
• guarantee that no client can lose more than all the funds in his trading account;
• stop offering current and potential retail customers cash or other inducements to encourage them to trade;
• provide a standardised risk warning, telling potential customers the percentage of the firm’s retail client accounts that make losses.

The deadline for firms to comply is 1 August for contracts for differences and 1 September for options that resemble them.

CFD-like options include ‘turbo certificates’, ‘knock out options’ and ‘delta one options.' They exclude spread bets on sports.

In the consultative process that preceded these rules, respondents to the FCA's consultative paper expressed disquiet about the ability of regulatory staff to know where the boundaries of their authority lay in terms of products.

It is evident that they had a point, as the the City of London Law Society gave the FCA some feedback about its definition of CFD-like options (‘restricted options’ in the rulebook), complaining that it was "uncertain, and risks inadvertently capturing the wrong products."

This was also the view of attendees at a rowdy public meeting last week at which Charles Randell, the FCA's chairman, had to field hostile questions about the FCA's failure to nip a succession of scandals in the bud. One victim of London Capital & Finance, which offered retail investors an 8% annual return on its ‘mini-bonds’ but entered insolvency in December, claimed that a member of the FCA's staff had brushed her fears aside and misleadingly reassured her that his quango was protecting her investment, whereas in fact it did not regulate minibonds. Randell reportedly blamed the complexity of the rules that delineated the limits of the FCA's remit, saying: "It’s actually almost impossible to explain. There’s tremendous risk of confusion...on the part of our staff. So it’s not a good situation and I’ll be the first to acknowledge that."

Anger also flared up at the meeting about the FCA's studious refusal to take vigorous action against RBS for its handling of small business customers in its Global Restructuring Group (which is accused of pushing businesses into bankruptcy unnecessarily, thereby earning various fees), plus other wholesale-related scandals that do not pertain to the private client world.