After a series of temporary actions, European financial regulators are adopting permanent restrictions on trading in certain risky, complex products, such as contracts for difference (CFDs) and binary options, by retail investors.
The UK’s Financial Conduct Authority (FCA) announced that it is implementing permanent restrictions on the sale, marketing and distribution of CFDs and CFD-like options to retail investors.
The restrictions — which include leverage limits, protections against excessive losses, and a ban on inducements to trade, among other things — aim to address harms to retail investors by adopting measures imposed by the European Securities and Market Authority (ESMA) in temporary rules.
“Our intervention follows evidence of firms aggressively marketing CFDs to the general public, meaning retail consumers are buying a product that isn’t appropriate for them,” Christopher Woolard, executive director of strategy & competition at the FCA, said in a statement.
“We saw firms offering CFDs with increasingly higher leverage, resulting in high proportions of consumers losing money. The new rules maintain and strengthen protections for consumers,” he added.
The ESMA applauded the move, saying that measures adopted by the FCA, along with similar moves by regulators in Sweden and France, “are justified and proportionate.”
Separately, the ESMA said that it will not renew its temporary ban on binary options trading for retail clients, given that most local regulators in Europe have now imposed curbs that are at least as stringent as ESMA’s restrictions in this area too.
“ESMA will continue to monitor activities in relation to these and other related speculative products to determine whether any other EU-wide measures may be needed,” it said.