In a circular to its regulated investment firms (CIFs), CySEC drew the attention of firms that provide investment services in Spain towards a recent statement released by its financial regulator.
Last year, the CNMV issued a circular that adopted an aggressive tone and threatened some European brokers that they could end up closing their activity in Spain, as the watchdog was fed up with their unfair practices. In essence, the guidance concerns companies that offer forex, contracts for difference (CFDs) and other speculative products among retail investors in Spain.
At the time, the Spanish regulatory body said it mainly examines CFD brokers based in Cyprus, and that it has its sights set on those who use overly aggressive tactics and practices.
Additionally, the CNMV’s tightening covers activities involving the acquisition of retail clients, including information provided through marketing channels.
“Certain inappropriate, common practices have been detected in the activity of some firms located in other EU countries that market products in Spain under the so-called European passport (mainly, firms acting under the freedom to provide services, that is, without an establishment or branch in Spain),” the CNMV said.
This public statement referred to practices such as marketing of investment services and client acquisition activities through non-authorised third parties. The watchdog clarifies that paying to unregulated affiliates and introducing brokers is not permitted and that marketing activities can be carried on only by authorised representatives or their tied agents.
In addition, the CNMV observed that in many cases, this acquisition activity is carried out in an aggressive manner by persons lacking appropriate knowledge and skills.
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Moreover, the Spanish authority warned these brokers of using their European license as a proxy to promote CFDs products offered by their offshore brands, which are mostly located in other countries and not authorised to operate in the EU.
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“It is considered that the inclusion of these references to third-country firms, which sometimes includes information highlighting greater leverage opportunities allowed by non-EU legislation to transact with these high-risk products, constitutes a not allowed marketing activity of services offered by firms not authorised to operate in Spain and, ultimately, a circumvention of the restrictions established in Spain for the marketing of these products to retail clients,” the statement further reads.
Furthermore, the CNMV’s circular contains rules on the procedures and controls institutions should adhere to. It also advises on the content and format of advertising messages, taking into account the criteria that the regulator applied in its supervisory actions.
To conclude, the watchdog made clear it will continue to support the adoption of ESMA’s curbs on risky products at European level to enhance investor protection.
“CySEC expects all CIFs that provide investment services in Spain to take, where necessary and by way of urgency, appropriate actions and measures to adhere to the content of the CNMV’s public statement and to the relevant requirements included therein,” the Cyprus authority said.
Cypriot CIFs need to notify CySEC when they are providing their services in third countries. Before they can deliver their product in a given country, they need to get appropriate authorisation from the country’s regulatory authorities first.
How these brokers managed to maintain their market share outside of Europe depended entirely on their business models. Some turned their focus to more ‘universal’ regulations. But, this was more complicated since it implies additional sub-strategies to handle dealing with non-EU clients from countries with regulators, and non-EU clients from countries without a regulator.