CHOICE has called for the federal government to extend and expand the current restriction on how and what contract-for-difference (CFD) products are offered to Australian retail investors.
In a letter to the Australian Securities and Investments Commission, CHOICE said CFDs are precisely the kind of financial product that should be subject to market-wide product interventions from regulators.
CHOICE warned that “significant consumer harm will eventuate” if the current product intervention order is left to expire.
“If the order is not renewed, consumers would risk potentially losing billions of dollars in CFD losses as seen in 2020,” the consumer advocacy group said.
In countries like the United States, CFD trading is banned for retail investors due its highly speculative nature.
Locally, Australian regulators have recently escalated their own management of the risks that CFDs can present to everyday investors.
In 2020, the Australian Securities and Investments Commission moved to introduce a slew of restrictions on the sale and distribution of CFDs to retail investors.
In the time since, the regulator said that it has observed “significant improvements” in key metrics and indicators of retail client detriment from CFD trading.
Data released by ASIC in October suggested that net losses from CFDs among retail investors fell by as much as 94 per cent of the quarterly average from the previous year as a result of the order.
However, this prohibition is set to expire in May 2022. If it does, CHOICE expects retail investors to bear the costs.
“CFD issuers would be allowed to resume six unfair trading practices, including being able to sell highly leveraged financial products to retail consumers,” they said.
In anticipation of this, ASIC has proposed an extension of the current restrictions that would see them run on until April 2031.
The regulator has concluded its consultation on this proposal in November 2021, but the next steps remain unclear.
An extension would require the approval of the current federal minister of superannuation, financial services and the digital economy Jane Hume – or whomever replaces her, should the next federal election occur before the order lapses.
In addition to supporting the proposed extension, CHOICE also advocated for an outright ban of CFDs in Australia.
“Banning the sale of CFDs would bring Australia in line with international best practice in consumer financial protection and create a fairer financial system,” the group said.