The ESMA is signaling vigilance over professional clients and third-country branches
The European Securities Markets Authority (ESMA) published an announcement confirming that the pan-European regulator is extending the validity of CFDs restrictions. The news comes as no surprise after the FCA made the temporary restriction permanent.
Only national regulators have the power to transform the measure into a permanent one. So far only the FCA and Bafin have been actively communicating with retail brokers about their intentions.
The new extension is valid for three months since February 1, 2019. The next extension is scheduled for the second half of April and should become effective from May 1, 2019.
What is more interesting is in the rationale behind the decision. The ESMA is closely watching brokers as we found out after exclusively reporting on a dataset which the UK FCA demanded from brokers. Some companies are implied to have violated the restriction on suggesting to customers a reclassification to professional status.
Professional Clients & Offshore Subsidiaries
National regulators reported to the ESMA an increase in the number of clients treated as professional clients. The figures were substantially higher when compared to a year ago.
“ESMA is aware that some CFD providers are advertising to retail clients the possibility of becoming professional clients on request,” the EU regulator’s decision states.
The watchdog elaborates that only a customer may request to be treated as a professional client. The ESMA highlights that it is aware that some brokers have been advertising “professional clients” solicitations.
According to the EU regulator, brokers should ensure that they comply at all times with all applicable legislative requirements.
“ESMA is also aware that some third-country firms are actively approaching Union clients or that some CFD providers in the Union are marketing the possibility for retail clients to move their accounts to an intra-group third-country entity,” the document continues.
According to the regulations, third-country firms are allowed to offer services to EU clients explicitly on their own request. The ESMA appears to be signaling that it might have encountered irregularities on part of brokers.
Finally, the ESMA is aware that firms are starting to provide other speculative investment products. ESMA will continue to monitor the offer of these other products to determine whether any other Union measures are appropriate.
Client Costs Decline
Outside of balance losses, clients have paid significantly lower amounts to their brokers over the first three months of the ESMA CFDs limitation. As the regulator states in its decision, retail clients incurred “significantly lower” costs for trading CFDs.
“Average costs in respect of active retail accounts containing CFDs on Cryptocurrencies fell disproportionately in comparison to others, though such accounts continued to incur higher costs than accounts with no cryptocurrency exposure,” the ESMA elaborates.
In addition, national regulators are reporting a sustained decrease in the number of automatic close-outs, as well as the number of times accounts, went into negative equity and the size of negative equity balances.
Profitability Unchanged
The ESMA is providing a detailed explanation behind its rationale to extend the temporary measures once more. National regulators have reported that only minor violations of the new regime have been observed since its implementation in August 2018.
According to the discussions at a regulatory level, the number of retail clients, trading volumes and client equity declined significantly. Moreover, the regulators didn’t observe any changes to levels of profitability over the three month period until October 2018 when compared to the same three months in the previous year.
The European Securities Markets Authority (ESMA) published an announcement confirming that the pan-European regulator is extending the validity of CFDs restrictions. The news comes as no surprise after the FCA made the temporary restriction permanent.
Only national regulators have the power to transform the measure into a permanent one. So far only the FCA and Bafin have been actively communicating with retail brokers about their intentions.
The new extension is valid for three months since February 1, 2019. The next extension is scheduled for the second half of April and should become effective from May 1, 2019.
What is more interesting is in the rationale behind the decision. The ESMA is closely watching brokers as we found out after exclusively reporting on a dataset which the UK FCA demanded from brokers. Some companies are implied to have violated the restriction on suggesting to customers a reclassification to professional status.
Professional Clients & Offshore Subsidiaries
National regulators reported to the ESMA an increase in the number of clients treated as professional clients. The figures were substantially higher when compared to a year ago.
“ESMA is aware that some CFD providers are advertising to retail clients the possibility of becoming professional clients on request,” the EU regulator’s decision states.
The watchdog elaborates that only a customer may request to be treated as a professional client. The ESMA highlights that it is aware that some brokers have been advertising “professional clients” solicitations.
According to the EU regulator, brokers should ensure that they comply at all times with all applicable legislative requirements.
“ESMA is also aware that some third-country firms are actively approaching Union clients or that some CFD providers in the Union are marketing the possibility for retail clients to move their accounts to an intra-group third-country entity,” the document continues.
According to the regulations, third-country firms are allowed to offer services to EU clients explicitly on their own request. The ESMA appears to be signaling that it might have encountered irregularities on part of brokers.
Finally, the ESMA is aware that firms are starting to provide other speculative investment products. ESMA will continue to monitor the offer of these other products to determine whether any other Union measures are appropriate.
Client Costs Decline
Outside of balance losses, clients have paid significantly lower amounts to their brokers over the first three months of the ESMA CFDs limitation. As the regulator states in its decision, retail clients incurred “significantly lower” costs for trading CFDs.
“Average costs in respect of active retail accounts containing CFDs on Cryptocurrencies fell disproportionately in comparison to others, though such accounts continued to incur higher costs than accounts with no cryptocurrency exposure,” the ESMA elaborates.
In addition, national regulators are reporting a sustained decrease in the number of automatic close-outs, as well as the number of times accounts, went into negative equity and the size of negative equity balances.
Profitability Unchanged
The ESMA is providing a detailed explanation behind its rationale to extend the temporary measures once more. National regulators have reported that only minor violations of the new regime have been observed since its implementation in August 2018.
According to the discussions at a regulatory level, the number of retail clients, trading volumes and client equity declined significantly. Moreover, the regulators didn’t observe any changes to levels of profitability over the three month period until October 2018 when compared to the same three months in the previous year.
58% of UK Investors Choose Professional Guidance over 'Finfluencers’
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
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#fmas #fmas24 #fmevents #networking #finance #africa
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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