Ireland introduces a product intervention for CFD. What about ESMA?

The Central Bank of Ireland announced that it is introducing a ban on the sale of binary options. In addition, it "adds" limitations to the CFD instruments market addressed to retail investors. The changes will enter into force as soon as the intervention of ESMA (European Securities and Markets Authority) expires. These, however, as the portal informs Finance Magnates, they will probably expire on the anniversary of their introduction, ie in ... less than 3 weeks.

For the sake of traders ...

In order to protect the interests of investors, a decision was made to introduce a total ban on trading, distribution and sale of binary options addressed to retail investors. In the case of CFD instruments, the leverage will be limited and the obligation to protect against negative balance will be introduced.

Derville Rowland, General Director of CBoI:

The Central Bank prohibits selling binary options to retail investors because we consider them to be a fundamentally flawed product that has no place in retail investor's investment plans. Based on our ongoing work on CFDs at national and EU level, we have concluded that retail investors need to be protected from excessive levels of leverage, which can result in unexpectedly high levels of loss and the risk of losing more money than you are depositing. to their CFD account.

In the published statement, Central Bank of Ireland explains that the decisions taken result from the desire to provide investors with better security. The bank refers to the results of surveys conducted by EU authorities, which show that 74-87% of retail clients lose money when trading in the binary options market. When trading CFD instruments, 75% of clients lose. The average loss is € 6. This sends a clear message to policymakers - changes are needed.

In the CBoI message, we read:

“The Central Bank worked closely with ESMA on investor protection. In 2018, ESMA introduced temporary product intervention measures for selling CFDs and binary options to retail investors, measures advocated by the central bank. Upon the expiry of these temporary measures, national central bank product intervention measures will immediately enter into force to ensure continued protection of retail investors. '

ESMA will soon expire?

ESMA's product intervention, which covered binary options in its spectrum, was implemented on July 1, 2018. The regulations on the CFD instruments market were introduced a month later - August 1, 2018. Initially, the intervention was to last 3 months, with an indication that this period was it may be extended by another 90 days, and information about the possible extension was to be published at least 30 days before the earlier expiry date. Industry experts estimate that the European regulator will resign from further extensions of the "temporary restrictions" on the anniversary of their introduction. Will it really be like that?

Before we open the champagne, dreaming of the alleged triumph and "Release of the lever"It is worth remembering that virtually every European national supervisor is working on its own product limitations for the Forex market and binary options for a long time. Some regulators have already decided to introduce ESMA provisions in the unchanged formula (including Denmark, the Netherlands, the Czech Republic, Slovakia, Estonia, and soon Great Britain). Some, however, want to stimulate the Forex industry, offering something more than they could have (read: CySEC wants to offer the 1 leverage: 50).

Be sure to read: IDM appeals to the PFSA regarding changes in the FX / CFD intervention conditions

The abolition of ESMA regulations is an opportunity to improve trade conditions in some European jurisdictions. It is also the specter of "competition" between different countries for which the Forex industry is important. A highly questionable scenario, however, is a return to the former trading conditions and it can be assumed that each of the "local" product interventions will have to be approved by ESMA.