Promotion of spread betting faces FSA scrutiny
February 5, 2005admin No Comments »The Financial Services Authority is scrutinising the spread-betting industry for evidence of misleading promotions and mis-selling.
The probe follows the £70,000 fine levied by the FSA last December against Cantor Index, one of the leading spread-betting firms. The watchdog said Cantor had failed to warn consumers adequately about the risks of spread betting in a promotion that promised free gifts, such as a hand-held computer, to new customers.
The FSA said yesterday: “Spread betting is an area under a great deal of scrutiny. We have already fined one firm for mis-selling.”
The regulator is understood to be concerned that other companies have used similar promotions to advertise spread betting. The practice enables traders and investors to gamble on price movements in anything from shares to metal prices for a small amount of capital.
The market is becoming increasingly competitive and spread-betting firms rely heavily on advertising to boost investor awareness of their products. The City watchdog said the Cantor Index advertising campaign which was launched in September 2003 and included handing out fliers at London tube stations was misleading.
It said Cantor did not sufficiently explain the risks of spread betting, where investors can lose much more than their initial stake. It also attracted the attention of less experienced investors and did not ensure that they were likely to understand the risks, the FSA said.
The regulator has been increasingly vigilant in ensuring that companies feature risk warnings more prominently on their advertisements. “The industry has been under close scrutiny for the past two years. The FSA has gone to great lengths to tell companies they must comply with its rules on advertising,” said David Buik, a Cantor Index spokesman.
Compliance costs have mounted for the industry as the FSA has increased regulation and capital requirements.
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