Global regulators propose crackdown on financial spreadbetters

By Huw Jones

LONDON (Reuters) - Financial spreadbetters targeting retail customers should be licensed to stop them exploiting gaps in cross-border rules and preying on inexperienced investors, global regulators proposed on Tuesday.

The International Organization of Securities Commissions (IOSCO) proposed a coordinated crackdown on sales of rolling-spot forex contracts, contracts-for-difference (CFDs) and binary options.

Such products can be used to bet on moves in currencies, interest rates and other market prices, and are usually sold through online trading platforms without advice, and with most retain investors losing money, IOSCO said.

"An increasing number of IOSCO members have reported that intermediaries active in these products are targeting the mass retail market," IOSCO said in a statement.

"A significant proportion of firms offer services on a cross-border basis, often without a physical presence in many of the jurisdictions where the end-consumers reside. This presents specific challenges to regulators regarding the supervision of these firms."

IOSCO groups national market watchdogs such as the U.S. Securities and Exchange Commission, Germany's BaFin and the Financial Services Agency in Japan.

Other members like Britain and Israel have already taken a tougher approach to binary options. Shares in spreadbetters such as IG Group <IGG.L>, CMC Markets <CMCX.L> and Plus 500 <PLUSP.L> sank in December when the European Union's markets watchdog said it would curb a core part of their market.

IOSCO said firms were using misleading marketing messages to target a high volume of inexperienced retail customers as they are likely to lose money.

Firms were also offering leverage of up to 2000 to 1 in rolling spot forex or CFDs, a large bet on the back of a tiny initial outlay.

There has been an increase in the number of unlicensed firms selling the products illegally, IOSCO said.

It proposed tools for members to replace their patchwork of regulation with a more joined-up approach, including a licensing requirement for all firms that sell the products at home or abroad, and limits on leverage.

"Licensing provides a critical safeguard that firms are appropriately managed, and that certain conduct and prudential standards are observed when undertaking business," IOSCO said.

It proposed measures to tackle the risk of investors losing more than their initial investment, and improve disclosure of risks.

A public consultation on the proposals ends next month and IOSCO will then publish a final report. Applying agreed regulatory approaches is part of IOSCO membership.

(Reporting by Huw Jones; Editing by David Holmes)