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UK’s FCA warns brokers not to use products similar to CFDs to get around ESMA’s restrictions

 

UK’s financial watchdog has come up with a statement following the entry into force of ESMA’s restrictions on CFD trading, which include a leverage cap of 1:30, among others. The FCA expressed concerns that firms may try to get around ESMA’s measures by selling other similarly complex products to retail clients.

 

If we have evidence that these products are causing similar harms, we will work with ESMA and will, if necessary, support further action to extend the scope of its intervention,” the FCA stated in its official notice.

 

Meanwhile, ESMA has also addressed that issue in its Technical QAs Product Intervention, making clear that firms “should pay particular attention to the leverage made available to retail clients and consider whether the product is offered on terms that act in the best interests of the client” for products that have comparable features to CFDs, such as Turbo Certificates.

 

The European Securities and Markets Authority (ESMA) introduced temporary measures to restrict the sale, marketing and distribution of contracts for difference (CFDs) to retail clients for three months. The measures apply across the EU from today (August 1, 2018) and include a leverage cap, obligatory provision of negative balance protection, a restriction on the incentives offered to trade CFDs (such as bonuses), as well as a requirement for forex brokers to include A standardized risk warning, including the percentage of losses of their clients.

 

The FCA says it will be on the alert of any substitute or alternative to CFDs products offered by financial services providers in the UK and that it will monitor and assess the sale of these products to retail clients. To that end, the FCA will work closely with ESMA and other European regulators. UK is still formally a part of the EU and recently a senior executive at FCA stated that in the long-term the UK financial market will remain highly integrated whatever the outcome of Brexit. This means that UK forex brokers must continue to comply with the CFD trading rules applicable across the EU and the EEA.

 

TAGS: FCA  leverage cap  ESMA  UK forex brokers 
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