BETTING firms and stockbrokers have been warned by the Central Bank that they may be fined after a probe found they have been failing to warn consumers of the risks of making huge losses on spread betting.
The Central Bank said it inspected four companies and about 80 files. Most of the firms were fully compliant with market rules, but a number of firms did not comply with the regulations. The Central Bank has not named the firms involved.
The probe found companies offering complex spread betting, also known as contracts for difference (CFDs), breached regulations about the need to warn consumers that they risk making massive losses.
CFDs, or financial spread betting, involves a punter taking a view on the price movement of a share, index, currency or commodity without owning it.
Formerly Ireland's richest man, Sean Quinn had built up a massive position in Anglo Irish Bank using CFDs before the bank was nationalised.
A spread is a range of outcomes and the bet is whether the outcome will be above or below the spread. Spread betting carries a high risk, with potential losses or gains far in excess of the money wagered.
CFDs are offered by investment firms and betting firms. The Central Bank probe found the unnamed firms gathered insufficient information about their clients' knowledge and experience with financial transactions, while client application forms were also found to be inadequate.
Under EU regulations, firms are required to take into account whether a product or service is appropriate for the client and if not suitable, a client must be warned of this.
The Central Bank inspection found that in some cases the "assessments of appropriateness" were inadequate or were not carried out at all.
The Central Bank also said that risk warnings and disclosures on the companies' websites and documentation was also found not always to be adequate to convey the risks.
The issues identified in the inspection are being followed up with the firms concerned and the Central Bank said it is considering enforcement action in some cases.