The European Securities and Markets Authority [‘ESMA’] is currently promoting common supervisory approaches and practices which should be followed by the relevant national regulatory authorities of Member States. As a result of this, ESMA has developed the first batch of Q&A’s dealing the provision of MIFID investment services to retail clients in relation to CFDs, and to binary options and rolling spot forex (referred to as ‘other speculative products’). Although this document is primarily aimed at regulatory authorities, it is being circulated to investment firms intending to offer CFDs and other speculative products to retail investors.
ESMA recognises that the majority of retail investors will find difficulty in understanding the risks involved in these financial instruments due to their high leverage and automatic close-out features. CFDs and other complex products are also widely advertised and widely disseminated due to considerable cross-border activity across Europe. As a result of these issues, European regulatory authorities are highly concerned about the protection of retail investors.
The first batch of Q&As focuses on the below-mentioned topics:
- Key aspects relevant to the authorisation of firms offering CFDs and other speculative products to retail clients; and
- The treatment of certain conflicts of interest arising from particular business model features and practices commonly observed in firms offering CFDs and other speculative products to retail clients.
ESMA will review and update these questions and answers on a regular basis as this is intended to be updated continually as and when new questions or issues arise.