ESMA Singles Out Cyprus in Warning of CFD/Forex/Binary Options Products

The European Securities and Markets Authority (ESMA) has issued a new warning against CFD, Forex and Binary Options products today, citing their high level of risk. According to ESMA, the public warning occurs as there has been a rise of firms offering such products, which has led to an increase of complaints from investors to regulators about significant losses when trading these products.

The warning occurs as ESMA has become proactive in citing opinion of consumer protection conflicts in regards to CFD/Forex/Binary Options trading as well as difficulty they post to comply with current MiFID obligations. Along with the warning, ESMA has added new content to their Q&A paper that reviews several aspects of conflicts of interest and MiFID compliance. The working paper was first published in April.

As part of their warning, ESMA stated that the speculative products are often marketed using aggressive tactics. They also added that “most cases, retail clients speculating in CFDs, binary options or other speculative products lose the money they have invested.”

Cyprus Singled Out

In their warning, ESMA singled out Cyprus, of which many brokers are based in the country but actively market CFD/Forex/Binary Options trading to the rest of Europe. According to ESMA, since mid-2015, the supervisory group has been coordinating efforts with Cypriot financial authority, CySEC, and other European financial authorities in regards to issues arising in relation to a number of Cyprus based brokers.

The cooperation between financial regulators has led to the initiation of a supervisory action plan by CySEC. This plan has been the foundation of the large group of fines being imposed by CySEC recently. According to ESMA, CySEC has imposed fines or reached settlements with a number of brokers totaling €2,072,000.

In addition to penalties, the coordinated work among regulators has led to CySEC issuing multiple regulatory circulars to its members. Topic covered in the circulars include handling of client complaints, remuneration policies and trading of binary options.

Overall, the statements from ESMA bring to the public what has been widely believed within the online trading industry. Following an increase of penalties and tougher regulatory conditions, brokers had begun to believe that the CySEC was receiving pressure from fellow EU financial regulators.

Unified approach across Europe

Along with its current warnings, ESMA stated that they are promoting a common approach to supervisory of how speculative financial products are sold. That process is being pushed ahead through the above mentioned Q&A Working Paper.

In the updated Q&A that was released today, new topics covered include the supervisory of marketing communications, client information that should be gathered and commercial arrangements between financial firms.

Ron Finberg
About the author: Ron Finberg
Ron is Executive Director, Product Specialist at S&P Global Market Intelligence Cappitech and helps customers with their compliance of EMIR, MIFIR, SFTR, MAS and ASIC derivative reporting. Ron is an ongoing contributor of regulatory focused content and webinars and leverages his over 20 years’ experience in the financial industry. He was also awarded the Editor’s Recognition Award for Best RegTech Vendor Professional in the RegTech Insight Europe Awards 2021.