Thu. Jul 18th, 2019

Planet Compliance

Innovation & Regulation in Finance

ESMA advises on marketing and sale of CFDs and other speculative products to retail clients under MiFID

3 min read

The European Securities and Markets Authority (ESMA) has published today an updated version of its question and answer document (Q&A) on the application of the Markets in Financial Instruments Directive (MiFID) to the marketing and sale of financial contracts for difference (CFDs) and other speculative products to retail clients (such as binary options and rolling spot forex).

ESMA highlighted that regardless the highly speculative nature of these products and the fact that their structures makes them difficult to understand for a majority of retail investors, these products are widely advertised to the retail mass market by a number of firms, often via online platforms, and are commonly sold without the provision of investment advice. There is also a considerable degree of cross-border activity across Europe in these products. Many competent authorities have concerns about the protection of investors in this area and the purpose of the Q&A is to promote common supervisory approaches and practices in the application of MiFID and its implementing measures to key aspects that are relevant when CFDs and other speculative products are sold to retail clients. It does this by providing responses to questions identified by competent authorities in relation to practical aspects of the day-to-day supervision of firms involved in offering these products.

 

profits-598892_1280

 

The updated to the Q&A includes 9 new questions and answers, which address the following topics:

  • The information provided to clients and potential clients about how CFDs and other speculative products work and the risks involved, including marketing communications;
  • The assessment of a retail client or potential retail client’s ability to understand the risks involved in order to determine whether trading in CFDs or other speculative products is appropriate for them; and
  • Factors for supervisors to consider when firms offering CFDs or other speculative products to retail clients enter into certain commercial arrangements with other authorised firms.

This document has been produced with reference to the current (i.e. MiFID I) legislative framework that is in application at the time of publication of this document. However, it should be noted that the principles and requirements underpinning the content of this document will remain unchanged once the MiFID II package, which overall strengthens the protections for investors, enters into application. 
ESMA will also consider the need for any further work on this topic, in the 
medium term, in light of new aspects of the MiFID II framework, such as in relation to the application of product governance requirements and product intervention powers.

The ESMA statement and the Q&A document can be found here.

 

 

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

PlanetCompliance © 2019. All rights reserved. | Newsphere by AF themes.