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UK spread betters consider move overseas amid crackdown

Trader brexit reaction
Russell Boyce | Reuters

Financial spread betting company CMC Markets could be poised to relocate to Germany after the Financial Conduct Authority (FCA) threatened to crackdown on U.K. regulations, though they may well be best advised to stay put, according to an analyst.

The consumer market for spread betting firms has reportedly doubled in the past six years with the FCA finding that 82 percent of people lost money trading on such accounts.

The financial regulator proposed tougher rules on bets placed by retail customers in early December. That prompted U.K. spread betting giant CMC to consider a move to Berlin, a decision that could see as many as 300 London-based staff, its headquarters and contract-for-differences (CFDs) operations relocated, according to Sky News.

Huge amount of disruption

"I don't see much point in (CMC relocating to Germany), it is a huge operation to move to another country and attempting to move 300 people would result in a huge amount of disruption," Jonathan Goslin, associate director at Numis, told CNBC in a phone interview.

"Currently, it appears more likely than not that these (FCA) rules and regulation changes will soon apply throughout Europe anyway. So what are they going to achieve? I suspect not a lot. Okay, there is a temporary gain to be had but of course it does not make sense long term," he added.

Leverage caps remain a key area of focus as the FCA proposed limits for U.K. based CFD companies, yet Germany's financial watchdog, BaFin, has not introduced these restrictions. One source told CNBC that it is therefore only natural that spread betting groups would investigate relocation in case they are able to take advantage of more alluring conditions elsewhere.

The FCA is scheduled to announce any changes next Spring in a bid to create a level playing field for CFD companies and traders alike. Expectations are high that BaFin and CYSEC, Cyprus' regulator, would adopt similar rules to the FCA in due course.

Combined loss of over $1.2 billion

CMC is in talks with regulators in the UK and on the continent before it makes a decision about its future base.

"Until CMC has finished discussions with the UK and German regulators as part of the consultation process the Board is not in a position to make any comment on the outcome of its review," London-based spread betting giant CMC Markets told CNBC in an email.

CMC was founded by Peter Cruddas, a prominent Conservative party donor and supporter of the campaign to leave the European Union (EU).

Shortly after the FCA announced plans to review regulations at the beginning of December, major London based CFD firms' shares tanked resulting in a combined loss in value of more than 1 billion pounds ($1.23 billion).

CMC shares dropped by 27 percent, IG Group witnessed its share price value decline by a quarter and Plus500 was down by over 33 percent.

Serious concerns

"We have serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding of the risks involved, and as a result can incur rapid, large and unexpected losses," Christopher Woolard, executive director of strategy and competition at the FCA, said in a statement.

Following the City watchdog' s announced proposals to restrict the level of financial risk that an investor can take when using the services of CFD firms, IG Group has declared no desire to leave the U.K. regardless of the FCA decision next Spring.

"The U.K. has been IG's home market since the company was established in 1974, and we have absolutely no intention to change this," Kieran McKinney, head of corporate affairs, told CNBC in an email on Wednesday.

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