In spread betting, the house wins. But maybe not this time

In 1994, during a series of US congressional grillings dubbed the Waxman hearings, the seven chief executives of Big Tobacco all memorably stood in a line and swore they did not believe nicotine was addictive.

The footage of the so-called “seven dwarves” doesn’t look all that great now, what with the subsequent disclosure of the companies’ own scientific reports – dating back to, er, the 1950s – that said the opposite, plus whistleblowers such as Jeffrey Wigand emerging to illustrate that the executives were either (a) lying or (b) smoking something slightly stronger than a John Player Special.

Still, if you feel like being ridiculously charitable to the seven bosses, you could make the argument that they were at least sticking up for their companies and products. Revealingly, that’s not always the case when firms get accused of harming their clients.

Take the financial spread betting industry, for example, where in December 2016 the Financial Conduct Authority announced a clampdown to protect inexperienced retail customers. That was followed by a similar effort from the European regulator on high-risk online bets in December 2017, plus the FCA returning to the fight last month, proclaiming it had found widespread failings in the industry that could be putting consumers at serious risk of harm.

The spread-betting companies’ reaction to these devastating moves? Almost blanket acceptance of the regulators’ proposals – which rather suggests they knew what they’d been getting away with for years.

It is important to remember that financial spread betting has always been marketed as an investment product (unlike sports spread betting, which is flogged as a leisure activity), and certainly the financial spreads industry has made the odd player very rich. The problem is, the winners have rarely been punters.

Stuart Wheeler, who in the 1970s created what became the grandaddy of the sector, IG Group, made so much money he could afford to buy a castle. Peter Cruddas, the founder of CMC Markets, became richer still, having supposedly once been a billionaire (although he’s scraping by on a few hundred million now), while even industry minnow London Capital Group made founder Simon Denham wealthy enough to buy the former home of a former music star (Liam Howlett of the Prodigy, in 2011).

Every company says it follows regulations, which is almost always true. But complaints that only 20% of spread betters ever make profits are about as old as Wheeler’s brainwave, which might explain why newer entrants have kept appearing.

One of them is Israel-based Plus500, which floated on the London stock exchange in 2013 and offers financial bets via contracts for difference (which, actually, aren’t much different from a spread bet). In 2015, its UK service got suspended by the FCA over money-laundering control concerns. Senior non-exec Charles Fairburn is apparently so ambivalent about his company’s prospects that he netted about £650,000 in 2017 by flogging off Plus500 shares.

We will get some clues about if that was a decent trade this week as Plus500 reports its figures, when it will attempt to convince the City that the sector’s woes apply only to its competitors. Most spread-betting firms are sure the retail game is up, so are desperately looking to reinvent themselves as business-to-business trading platforms. Still, ask Plus500 if most of its customers lose (or, indeed, ask it any question at all) and it proves far shyer than the tobacco bosses. We can’t comment, is all it will say.