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Spread-betting bookies bashed by Financial Conduct Authority

Billions wiped off share prices as watchdog launches crackdown to protect punters

James Moore
Tuesday 06 December 2016 10:20 GMT
FCA is proposing a crackdown on spread betting
FCA is proposing a crackdown on spread betting (Reuters)

On one side is the spread-betting industry, the biggest player in which saw £1bn wiped from its value in a matter of minutes after the City watchdog brought the hammer down. On the other is an Irish teacher, a concert pianist and others like them whose losses were in the thousands, the tens of thousands and the hundreds of thousands.

Shares in IG Group, Britain’s biggest spread-betting bookie, endured a horrible day’s trading. However, the company can cope with £1bn off its market value rather better than some of its clients, who had been speculating on the Swiss Franc when the Swiss Central Bank unexpectedly cut the currency free of its peg to the euro, could cope with their losses last year.

It seems astounding that a teacher and a concert pianist could be involved in the arcane practice of currency speculation. But through financial spread betting they were. And they lost big, more than they could afford to pay back.

The teacher, Tomas O’Comartuin, who worked on supply and was earning just €25,000 (£21,000) a year after tax when he spoke to The Independent, was taking a class when his phone bleeped with a text saying the Swiss had scrapped the cap. He faced a loss of nearly £280,000 that he couldn’t hope to pay back. The pianist, Marcel Zidani, saw a £2 exposure turned into £5,500 loss, more manageable for sure, but still more than he could afford.

It is with them in mind that the Financial Conduct Authority is proposing to clamp down on the booming industry. In future it wants companies like IG and its peers to limit “leverage” – the amount their clients can put at risk – to 25 times what they have on deposit when they’re beginners, 50 times after they have a year’s trading history. Risk warnings will be made clearer. Companies that offer bonuses to entice new clients (IG says it does not) will no longer be able to do so.

The reforms are actually relatively modest and proportionate. There are some markets on which spread-betting companies limit leverage to less than 50 times anyway.

Moreover, it isn’t in the industry's interest to allow its punters to lose too much because then it will lose them as clients. It is for that reason that IG, and it wasn’t alone, wrote off a lot of the losses incurred by clients during the “Swissie” debacle.

Unfortunately, according to the FCA, more than 80 per cent of clients do lose money and opening yourself to losses of many times your stake if you’re of limited means – like our teacher and our concert pianist – is a dangerous game to play.

More fool them, some would argue. They deserved what they got. There’s something in that: but it’s an uncomfortable fact that sometimes people need protecting from themselves – particularly when you consider that some of IG’s competitors make that company look like an angel.

Hence the reforms, and the UK is by no means alone in taking action. The Cypriot Securities and Exchange Commission just last week announced its own measures, which are broadly similar. Other countries have been looking at following suit.

In the long run IG might actually benefit, as may others at the more reputable end of the industry. The FCA’s move may squeeze more cavalier rivals while, at the same time, preventing the more sensible operators from getting egg all over their faces as they did with the Swissie.

The fall in the share prices of IG and its rivals might soon look to be overdone. It might even be worth taking out a spread bet on their rebound.

Just be careful before you do. If IG and its peers have any sense they’ll adopt something like the FCA’s proposals right away. That way clients won’t get too badly hurt if I’ve called the rebound in its shares wrong.

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