Breaking: ESMA Contemplates Product Intervention Powers over Retail Brokers

The European Securities Markets Authority (ESMA) is exploring the implementation of new regulatory measures for the Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term and CFDs industry. The supranational regulator has just published a communique outlining that it is “concerned” about some practices in the provision of retail forex and CFDs, as well as binary options.

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The European authority is reportedly exploring the same measures that were outlined by the UK Financial Conduct Authority (FCA) late last year, including a cap on Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term and bonus bans. The new regulations on the industry are not expected to come into effect before the start of 2018 as the new MiFID II regulatory framework expands the powers of ESMA, allowing it to apply 'product intervention powers'.

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Such powers may be used by ESMA to curb certain financial products for a period of 12 months, requiring a reassessment at least every three months.

The announcement comes in tandem with the FCA's decision to delay its new measures on the sector. The London-based watchdog has decided to delay the implementation of new measures and coordinate its efforts with ESMA.

Adding New Regulations and Banning Certain Products

The European supervisor said in its announcement: “The ESMA has been concerned about the provision of speculative products such as CFDs, rolling spot forex and binary options to retail investors for a considerable period of time and has conducted ongoing monitoring and supervisory convergence work in this area.”

In the opinion of ESMA, the current regulatory framework in place may not be adequate to ensure consumer protection. The regulator is exploring the use of its product intervention powers to address investor protection risks.

The latter is part of the new regulatory framework under MiFID II. ESMA will have the power to temporarily prohibit or restrict the marketing, distribution or sale of certain financial instruments or types of financial activity.

“ESMA can take this action in circumstances where the action addresses a significant investor protection concern or a threat to the orderly functioning and integrity of financial markets or to the stability of the EU financial system; or alternatively where current EU regulatory requirements do not address the threat and member state regulators have not themselves sufficiently addressed the threat,” the EU regulator outlined.