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ESMA warns forex brokerages not to circumvent its product intervention measures

 

The European Securities and Markets Authority (ESMA) has identified certain undesirable practices among CFDs providers, which raise concerns of non-compliance with the product intervention measures introduced a year ago. This became clear from a statement published on ESMA’s website on Friday.

 

More specifically, the Pan-European regulator expressed its concerns regarding the practices of some forex brokers related to professional clients on request and the marketing distribution or sale by third-country CFD-Providers.

 

Ensuring investors are protected necessitates that all CFD providers respect all applicable requirements and do not circumvent them using professional client status or third country entities,” the statement said.

 

The EU’s securities markets’ regulator said it is aware that some brokerages are advertising to retail clients the possibility to become professional client on request, which includes certain trading incentives, as well as providing higher leverage levels. We remind you that according to ESMA’s product intervention measures, which were made permanent in many EU countries, the leverage available to retail clients is capped at 1:30, and trading incentives such as bonuses are not allowed.

 

ESMA also said it is also aware that some CFD providers established in the EU are offering their clients to move their accounts to an intra-group third-country entity. The Pan-European regulator warned brokerages that third-country firms are only allowed to provide services to EU investors at the client's own exclusive initiative.

 

In an effort to avoid the ESMA’s rules, many European brokers are indeed using their offshore or Australian entities. That being said, the Australian Securities and Investments Commission (ASIC) even warned Aussie brokerages to be careful not to break any overseas laws while offering OTC derivatives to retail investors in Europe.

 

ESMA and national financial regulators will continue to monitor compliance of CFD providers with the product intervention decisions and undertake further measures, where necessary.

TAGS: ESMA  product intervention measures  professional clients  leverage cap  EU 
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