The United Kingdom’s Financial Conduct Authority (FCA) has revealed that around 20 per cent of contracts for differences (CFDs) brokers, including spread betting and rolling spot forex providers, are conducting “little or no activity,” labelling them as “halo” firms.

In a letter to the CEOs of CFD firms, the regulator highlighted that the activities of these dormant or nearly inactive brokers cannot justify continued authorisation.

“Halo” CFD Brokers

“Some of these firms appear to exist purely to provide an FCA ‘halo’ to wider ‘groups’,” the letter stated. “This gives false comfort to global retail clients who see the FCA association but contract with an offshore ‘group’ entity rather than the UK-authorised firm, without UK regulatory protection.”

The regulator clarified that it would invite these inactive firms to cancel their operational authorisation and would “robustly challenge” their future plans. It will address such “halo” firms in the next regulatory cycle.

If these firms want to retain their FCA licences, they must show realistic revenue projections and convince the regulator that they are “ready, willing, and organised to start meaningful regulated activity.”

FCA authorisation is considered costly and challenging to obtain. Many firms view it as a status symbol in the industry and actively advertise FCA authorisation to a global clientele, even while onboarding them under non-UK entities.

The FCA expressed concern that potentially unscrupulous actors may acquire UK firms to give overseas ‘groups’ customers false comfort that they are protected by UK regulation.

The UK regulator will further scrutinise loss-making and “largely inactive” brokers that meet the minimum licensing requirements with “last-minute” capital injections.

Finance Magnates also reported the financials of many FCA-regulated CFD brokers that did not generate any revenue from trading activities.

EU Brokers Stayed Out

The FCA also revealed that 100 CFD brokers sought temporary permission in the country following Brexit. However, none of those EU-based brokers have obtained permanent authorisation, meaning they have ceased offering services in the UK.

The letter to CFD executives further highlighted that CFD brokers must comply with consumer duty, build robust controls against market abuse, and reduce harm in the event of failure.

Interestingly, three of the largest global CFD providers—IG Group, CMC Markets, and Plus500—are authorised by the FCA and listed in London. The UK regulator emphasised that no CFD brokers are “too big to fail” and must have orderly failure plans to minimise consumer impact.

Another key area addressed in the letter is the diversification of CFD brokers with physical stock trading services. The regulator noted that “a small number” of CFD brokers have moved into stocks, often including fractional shares, to lower the minimum account size required to access investment markets.

According to the regulator, such offerings often attract “less financially experienced” retail clients. The watchdog raised concerns about inappropriate marketing of ‘zero commission’ without transparency on other costs, as well as the use of ‘gamification’ or other digital engagement practices to encourage short-term speculative trading.

“Our strategy for the next two-year cycle aims to build on previous work and further reduce the potential harm CFDs present when marketed inappropriately or with inadequate controls,” the letter stated.

“By 31 January 2025, we expect all CEOs of CFD firms to have discussed this letter with their fellow directors and/or Board and to have agreed on next steps.”

The United Kingdom’s Financial Conduct Authority (FCA) has revealed that around 20 per cent of contracts for differences (CFDs) brokers, including spread betting and rolling spot forex providers, are conducting “little or no activity,” labelling them as “halo” firms.

In a letter to the CEOs of CFD firms, the regulator highlighted that the activities of these dormant or nearly inactive brokers cannot justify continued authorisation.

“Halo” CFD Brokers

“Some of these firms appear to exist purely to provide an FCA ‘halo’ to wider ‘groups’,” the letter stated. “This gives false comfort to global retail clients who see the FCA association but contract with an offshore ‘group’ entity rather than the UK-authorised firm, without UK regulatory protection.”

The regulator clarified that it would invite these inactive firms to cancel their operational authorisation and would “robustly challenge” their future plans. It will address such “halo” firms in the next regulatory cycle.

If these firms want to retain their FCA licences, they must show realistic revenue projections and convince the regulator that they are “ready, willing, and organised to start meaningful regulated activity.”

FCA authorisation is considered costly and challenging to obtain. Many firms view it as a status symbol in the industry and actively advertise FCA authorisation to a global clientele, even while onboarding them under non-UK entities.

The FCA expressed concern that potentially unscrupulous actors may acquire UK firms to give overseas ‘groups’ customers false comfort that they are protected by UK regulation.

The UK regulator will further scrutinise loss-making and “largely inactive” brokers that meet the minimum licensing requirements with “last-minute” capital injections.

Finance Magnates also reported the financials of many FCA-regulated CFD brokers that did not generate any revenue from trading activities.

EU Brokers Stayed Out

The FCA also revealed that 100 CFD brokers sought temporary permission in the country following Brexit. However, none of those EU-based brokers have obtained permanent authorisation, meaning they have ceased offering services in the UK.

The letter to CFD executives further highlighted that CFD brokers must comply with consumer duty, build robust controls against market abuse, and reduce harm in the event of failure.

Interestingly, three of the largest global CFD providers—IG Group, CMC Markets, and Plus500—are authorised by the FCA and listed in London. The UK regulator emphasised that no CFD brokers are “too big to fail” and must have orderly failure plans to minimise consumer impact.

Another key area addressed in the letter is the diversification of CFD brokers with physical stock trading services. The regulator noted that “a small number” of CFD brokers have moved into stocks, often including fractional shares, to lower the minimum account size required to access investment markets.

According to the regulator, such offerings often attract “less financially experienced” retail clients. The watchdog raised concerns about inappropriate marketing of ‘zero commission’ without transparency on other costs, as well as the use of ‘gamification’ or other digital engagement practices to encourage short-term speculative trading.

“Our strategy for the next two-year cycle aims to build on previous work and further reduce the potential harm CFDs present when marketed inappropriately or with inadequate controls,” the letter stated.

“By 31 January 2025, we expect all CEOs of CFD firms to have discussed this letter with their fellow directors and/or Board and to have agreed on next steps.”