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.
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.
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“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 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.