The French and Belgian regulators have taken steps to restrict the promotion and distribution of certain speculative derivative contracts by electronic trading providers.
The French regulator, Autorité des Marchés Financiers (AMF), and the Belgium regulator, Financial Services and Markets Authority (FSMA), appear to have taken a coordinated approach to restricting the marketing of products such as Contract for differences (CFD), binary options (BO) and rolling spot foreign exchange contracts (FX).
These supervisory actions are as a result of findings noted in the European Securities and Markets Authority (ESMA) warning notice - Warning about CFDs, binary options and other speculative products
, published on 25 July 2016, which outlined how both sovereign regulators’ had experienced a surge in the number of complaints in relation to these financial instruments. It also observed an increasing number of unregulated firms offering such contracts.
Just days after ESMA’s notice, the AMF published their announcement
of the restriction, including the cancellation of license for the binaries broker, Rodeler Limited (trading as 24option), to highlight the seriousness of this issue.
The AMF’s announcement makes amendments under Article 28 of the Sapin II bill, which seeks to introduce provisions to prohibit all forms of marketing directly or indirectly in relation to geared financial instruments by providers via electronic means. Under the General Regulation of the AMF, marketing communications regarding the following financial contracts shall be prohibited:
- binary option contracts;
- contracts that promote a direct or indirect investment in the foreign exchange market (forex or currency market);
- contracts for difference (CFD) that have a leverage greater than five.
In Belgium, the FSMA has gone further; by introducing a total ban on the promotion and distribution of leveraged financial products
for retail investors. The amendment to the regulation is twofold:
- a ban on distribution of a few specific types of derivative contracts to consumers via electronic trading platforms; and
- a ban on a number of aggressive or inappropriate distribution techniques (cold calling via external call centres, inappropriate forms of remuneration, fictitious gifts or bonuses, etc.) used when distributing over-the-counter (OTC) derivatives to consumers.
This regulation applies to unlisted or OTC derivatives, and came into effect on 18 August 2016.
In the UK, the FCA has been very active in this sector by increasing levels of supervision activity and thematic reviews. This has resulted in an increased number of Skilled Person’s reviews and enforcement action, making clear to this sub-sector of financial services that a change in conduct is expected. We recently published a comprehensive article sharing our insights in this area, which can be read here: FCA increases focus on the FX and CFD market
In our opinion, the changes brought across by French and Belgian authorities could signal a seed change across Europe in terms of how the respective Competent Authorities will regulate such activities going forward.
UK authorised firms that are currently passporting under MIFID into France or Belgium need to be aware of relevant regulatory changes, as it may have resulting implications across their business. For some firms, the passported activities which are undertaken in these countries represent a substantial part of the customer book, therefore having to cease the promotion of these instruments to Belgian or French customer could have significant impact on both strategy and cash flows.
How we can help
To discuss what this may mean to your business and your French and Belgium customers, please contact us. We can also apply our deep knowledge of the CFD/brokerage market and FCA expectations to help you understand the changes that your firm may need to consider if it is going to successfully weather the quickly changing regulatory landscape.