EUROPEAN UNION: ESMA Call for Evidence on Measures to Protect Retail Investors

Thursday January 25 2018

The European Securities and Markets Authority (ESMA) has published a call for evidence on measures to protect retail investors from the impact of certain specific potential product intervention measures under article 40 of the Markets in Financial Instruments Regulation (MiFIR) relating to the provision of contracts for differences, including rolling spot forex and binary options, to retail investors across the European Union.

This relates to ESMA’s statement at the end of last year that it was considering the use of product intervention powers under Article 40 of MiFIR to address investor protection concerns relating to the marketing, distribution and sale of CFDs and binary options to retail investors.

Since 2013, ESMA has taken a number of actions and initiatives, including specific warnings in 2013 and 2016, dedicated Q&As and the coordination of a joint group of NCAs to tackle issues related to a number of providers offering CFDs and other speculative products to retail clients on a cross-border basis across the Union.

Several NCAs have also taken actions to address risks to investor protection arising from these products. The type of actions include: increased supervision of firms providing these products; banning the distribution of certain derivative contracts to retail clients, banning providers from marketing communications to individuals; imposing leverage limits on CFDs provided to retail clients; limiting clients’ payment obligations; introducing specific risk warnings; and requiring clients to acknowledge risk via a handwritten statement.

ESMA remains concerned that the risks to investor protection are not sufficiently controlled or reduced by the above actions. In June 2017, an ESMA statementindicated that it would be considering the possible use of its product intervention powers under Article 40 of Regulation (EU) 600/20142(MiFIR), which have become applicable with the implementation date of MiFIR on 3rdJanuary 2018. The law provides ESMA, in compliance with relevant regulatory requirements, with the power to require temporary prohibitions or restrictions concerning certain financial instruments, financial activities or practices when, among other conditions, the proposed action addresses a significant investor protection concern in the Union.

As indicated in its Statement published on 15 December 2017, ESMA is considering measures to:

• restrict the marketing, distribution or sale to retail clients of CFDs; and
• prohibit the marketing, distribution or sale to retail clients of BOs.

Comments are to be received by 5 February 2018.

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