Breaking: ESMA Terminates All Bonus Practices Tied to Extra Trading
National regulators are going to enforce the new bonus practices to their regulated brokerages.
The European Securities Markets Authority (ESMA) has just issued a clarification related to the use of bonuses by retail forex and binary options brokerages. The supranational regulator of Europe states that all bonus promotions used by brokerages that are tied to trading volumes are to be suspended.
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National regulators are going to have to abide by the rules and monitor the implementation of the European MiFID law.
The elimination of bonuses that are tied to trading effectively eliminates one of the key retention and on-boarding tools
The ESMA justifies its opinion about bonuses by highlighting the psychological impact that a bonus may have on a client’s trading behavior. The EU regulator is advocating that every promotion which is encouraging clients to trade more should be suspended. Traders are starting to take bigger risks, which ultimately results in them losing their account principal.
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The ESMA highlights that the main outcome ofsuch bonuses is equal to providing clients with additional leverage.
The elimination of bonuses that are tied to trading effectively eliminates one of the key retention and on-boarding tools which brokers have been using. As is usually the case this year, binary options brokerages are the ones who are going to feel the pinch the most.
The binary options industry has been heavily reliant on supplying its clients with bonuses under conditions which deliver substantial obligations for clients who are willing to withdraw their funds. Clients of binary options brokers are frequently required to make a turnover of 20 to 30 times the amount of their bonus in order to be able to withdraw it.
According to the supranational regulator in Europe, companies that are awarding virtual sums of money as bonuses that are rarely possible (if not outright impossible) to convert to real money do not adhere to the requirement of looking after the best interests of their clients.
As is already standard practice, in cases when bonuses are awarded to clients, the amounts need to be put in a separate balance, which is not merged with the account value of the client.
Are reward programms such as “If you trade 50 lot, you get a watch” also affected? Date ESMA mention a date when the new rules must be implemented?
Can you share the source?
@Valeria,
look on ESMA’s website for a document that is titled “Questions and Answers Relating to the provision of CFDs and other speculative products to retail investors under MiFID”. The latest updates in this document are from October – the ESMA elaborates on several issues including bonuses and withdrawal requests compliance.
@Sebastian That will be up for discussion yet… check the full ESMA document for details
Best,
Victor
https://www.esma.europa.eu/sites/default/files/library/2016-1165_qa_on_cfds_and_other_speculative_products_mifid.pdf
Here is the link…..I can’t find the clause for the above only with regards to remuneration. Can you assist please.
You have found an old version of the Q&A. Here is the correct link:
https://www.esma.europa.eu/sites/default/files/library/2016-1165_qa_relating_to_the_provision_of_cfds_and_other_speculative_products_to_retail_investors_under_mifid.pdf
Surprised i missed this article. If only DirectFx.com actually applied this rule… wouldnt be as much stress after you win and wish to withdraw. Like calling 2-3 people to force the CEO to finally process the withdraw…sleepless nights…etc.