ESMA: Some EU CFD Providers are Trying to Circumvent Regulation
- The regulator has noticed firms encouraging retail traders to reclassify as professional clients.
Although the European Securities and Markets Authority’s (ESMA) product intervention measures have been in place for almost a year, it appears that some firms are still not fully compliant with the Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term.
This Friday, the European regulator published a statement on its website regarding concerning practices of providers marketing, distributing or selling contracts for differences (CFDs) to retail clients.
Specifically, ESMA has observed various practices which “raise concerns of non-compliance” with the legal requirements of the product intervention measures. These practices are related to professional clients on request and the marketing distribution or sale by third-country CFD-Providers.
According to the statement from ESMA, some trading providers are skirting around the regulation by allowing retail clients to become a professional-client on request, which the regulator believes is worrisome as it may incentivize, induce or pressure a retail client to be treated as a professional client.
“In this respect, any form of promotional language in relation to the status of professional client shall be seen as incentivising a retail client to request a professional client status,” the statement said.
“This includes providing a comparison between Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term limits available to different types of clients and the provision of any form of rewards for becoming a professional client.”
EU firms using third-country subsidiaries to avoid measures
The European regulator also pointed out this Friday that it has identified that some EU firms are trying to circumvent ESMA’s measures by encouraging EU-based retail traders to move their accounts to their other subsidiaries based in third countries which aren’t subject to the regulations.
While retail traders are allowed to use the services of third-country trading providers, firms are not allowed to deliberately solicit the business of them and can only provide the services to the clients if the customer exclusively initiates the contact.
“Furthermore, information in relation to the ‘benefits’ of trading CFDs with such an intra-group third-country entity could be seen as a circumvention of ESMA’s product intervention measures by the EU authorised firm,” ESMA said in the statement.
Although the European Securities and Markets Authority’s (ESMA) product intervention measures have been in place for almost a year, it appears that some firms are still not fully compliant with the Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term.
This Friday, the European regulator published a statement on its website regarding concerning practices of providers marketing, distributing or selling contracts for differences (CFDs) to retail clients.
Specifically, ESMA has observed various practices which “raise concerns of non-compliance” with the legal requirements of the product intervention measures. These practices are related to professional clients on request and the marketing distribution or sale by third-country CFD-Providers.
According to the statement from ESMA, some trading providers are skirting around the regulation by allowing retail clients to become a professional-client on request, which the regulator believes is worrisome as it may incentivize, induce or pressure a retail client to be treated as a professional client.
“In this respect, any form of promotional language in relation to the status of professional client shall be seen as incentivising a retail client to request a professional client status,” the statement said.
“This includes providing a comparison between Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term limits available to different types of clients and the provision of any form of rewards for becoming a professional client.”
EU firms using third-country subsidiaries to avoid measures
The European regulator also pointed out this Friday that it has identified that some EU firms are trying to circumvent ESMA’s measures by encouraging EU-based retail traders to move their accounts to their other subsidiaries based in third countries which aren’t subject to the regulations.
While retail traders are allowed to use the services of third-country trading providers, firms are not allowed to deliberately solicit the business of them and can only provide the services to the clients if the customer exclusively initiates the contact.
“Furthermore, information in relation to the ‘benefits’ of trading CFDs with such an intra-group third-country entity could be seen as a circumvention of ESMA’s product intervention measures by the EU authorised firm,” ESMA said in the statement.