Financial Services & Fintech |  Jun 21, 2016

MFSA issue circular on Q&A on CFDs and other speculative products published by ESMA

The MFSA has issued a circular informing the industry that ESMA has published an updated version of its Q&A on the provision of services to retail clients with respect to contracts for differences (“CFDs”), binary options and rolling spot forex (referred to as ‘other speculative products’). This circular follows that issued by the MFSA on the 13th April 2016 (more details about this may be found on our website here)  on  the ESMA’s publication of first batch of Q&A’s on the same topic.

The updated Q&As include new questions and answers which address conflicts of interests arising from business models that firms offering speculative products to retail investors may adopt.

The MFSA notes in the circular that, by means of the updated Q&As, ESMA clarifies the conflicts of interest aspects that National Competent Authorities should consider in situations where an investment firm uses other parties to perform activities on its behalf and highlights that investment firms must manage conflicts of interest that may arise as a result of remuneration between the parties, which could encourage behaviour which is not in the best interest of retail clients. CFDs and other speculative products are deemed to be complex financial products and these financial instruments may be difficult for the majority of retail investors to understand the risks involved due to high leverage and automatic close-out features. In addition, these financial instruments are also widely advertised and disseminated due to due to considerable cross-border activity across Europe. As a result, European regulatory authorities are concerned about the protection of retail investors in this respect.

Whilst the Q&A document is primarily aimed at regulatory authorities, the MFSA circular is being circulated to investment firms licensed in terms of MiFID which offer or intend to offer CFDs and other speculative products to retail investors in order to become aware of the regulatory expectations in their regard.

The MFSA Circular may be viewed here and the updated Q&As may be accessed here.

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