ESMA, the Paris-based European Securities and Markets Authority, today issued a warning about the sale of contracts for differences (CFDs), binary options and other speculative products to retail investors who may not be aware of the risks associated with these types of products.
The warning comes as ESMA and a number of national supervisors have observed an increase in the marketing of these products, often through aggressive practices. This is in addition to a rise in the number of complaints from retail investors who have suffered significant losses, which has also been reported.
Commenting on the latest observations, Steven Maijoor, ESMA Chair, said: “ESMA and national regulators still have serious concerns that firms are selling these products, which are inherently risky and speculative, to people who do not understand them. ESMA and national regulators are committed to working together to ensure investors receive proper protection across the EU.”
The products under scrutiny are often advertised to the retail mass market via online platforms and sold without investment advice.
When they are marketed and sold in an aggressive manner or when firms fail to comply with their regulatory obligations, it creates conditions in which retail investors may suffer significant detriment, including unexpected losses.
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Cyprus-Based Investment Firms
ESMA has also highlighted the regulatory action taken in relation to several Cyprus-based investment firms.
Since mid-2015, the organisation has coordinated a group of national regulators focused on issues relating to a number of Cyprus-based investment firms that sell CFDs and binary options across Europe.
The Cyprus Securities and Exchange Commission (CySEC) has imposed fines on, or reached settlement agreements with, eight firms: Depaho, Reliantco, IronFX Global, WGM Services, Pegase Capital, Rodeler, Banc de Binary and Ouroboros Derivatives Trading, totalling EUR 2,072,000. It has also suspended the licence of Pegase Capital as reported by Finance Magnates earlier this year.
ESMA is also promoting common supervisory approaches in relation to the sale of speculative products to retail investors so that the same standards are applied across the EU.
The latest update to its recently published Q&A document provides guidance on the information to be provided to clients and potential clients about speculative products and the appropriate assessment required when firms offer these products to retail clients.