Breaking: ESMA Contemplates Product Intervention Powers over Retail Brokers

ESMA is looking into using product intervention powers to curb malpractice in the industry.

The European Securities Markets Authority (ESMA) is exploring the implementation of new regulatory measures for the forex and CFDs industry. The supranational regulator has just published a communique outlining that it is “concerned” about some practices in the provision of retail forex and CFDs, as well as binary options.

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The European authority is reportedly exploring the same measures that were outlined by the UK Financial Conduct Authority (FCA) late last year, including a cap on leverage and bonus bans. The new regulations on the industry are not expected to come into effect before the start of 2018 as the new MiFID II regulatory framework expands the powers of ESMA, allowing it to apply ‘product intervention powers’.

Such powers may be used by ESMA to curb certain financial products for a period of 12 months, requiring a reassessment at least every three months.

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The announcement comes in tandem with the FCA’s decision to delay its new measures on the sector. The London-based watchdog has decided to delay the implementation of new measures and coordinate its efforts with ESMA.

Adding New Regulations and Banning Certain Products

The European supervisor said in its announcement: “The ESMA has been concerned about the provision of speculative products such as CFDs, rolling spot forex and binary options to retail investors for a considerable period of time and has conducted ongoing monitoring and supervisory convergence work in this area.”

In the opinion of ESMA, the current regulatory framework in place may not be adequate to ensure consumer protection. The regulator is exploring the use of its product intervention powers to address investor protection risks.

The latter is part of the new regulatory framework under MiFID II. ESMA will have the power to temporarily prohibit or restrict the marketing, distribution or sale of certain financial instruments or types of financial activity.

“ESMA can take this action in circumstances where the action addresses a significant investor protection concern or a threat to the orderly functioning and integrity of financial markets or to the stability of the EU financial system; or alternatively where current EU regulatory requirements do not address the threat and member state regulators have not themselves sufficiently addressed the threat,” the EU regulator outlined.

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