As France invokes advertising ban on retail FX, London’s finest see it as an opportunity to dominate in Europe

This week, the French financial markets regulatory authority, Autorité des marchés financiers (AMF), invoked its new rulings which set in place a framework which bans the advertising of retail FX and binary options products, and enforces limitations on how contracts for difference (CFDs) are advertised and marketed to French citizens.

In August last year, the AMF released its full proposals which detailed the extent of the ban on advertising OTC products to a French audience,
detailing the new “Sapin 2” rulings which, under Article 28, will introduce a mechanism to prohibit all forms of marketing communications addressed directly or indirectly by investment service providers, via electronic means (e-mail, online advertising banners, radio, TV, etc.), to individuals, regarding financial instruments that are particularly difficult to understand and potentially very risky. The text will enter into force after it is voted on by Parliament and enacted into law.

The law stipulates that marketing communications regarding binary option contracts or contracts that promote a direct or indirect investment in the FX market, or CFDs which have a leverage greater than 5:1 will be covered.

The introduction of this law is congruent with many national reactions to the retail FX and binary options business in mainland Europe, with Belgium having outlawed all forms of OTC derivatives from being offered to its citizens, and the UK having introduced draconian new regulations for CFDs, which drew the attention of some very senior London industry officials who questioned exactly what the rationale behind such a move against long-established, massively capitalized electronic trading firms which have their own proprietary platforms and a long standing, loyal client base.

In France, there have been a series of low range, unregulated spot FX companies targeting citizens from overseas, and as a result, the French and Israeli Police have been collaborating in order to resolve this matter and bring those who created damage to retail customers to justice, however the days of large French language desks in binary options brands and warehouse brokerages, targeting French customers and relieving them of their cash are numbered.

The main difficulty that the bona fide companies in this industry which have built their reputations on solid ground and have loyal client bases and public listing on major stock exchanges, and whose executives are astute professionals with a clear and extensive understanding of the global electronic trading business face is that those unregulated firms from non-aligned regions of the world that did damage in France, have now created a blanket advertising ban for everyone.

Once again, it is a case of the bad apples creating harm for the top quality companies.

Today, as the new rulings become set in concrete, FinanceFeeds spoke to several senior industry executives within London’s retail electronic trading sector, in which CFDs are a core business activity, who explained their perspectives on this matter, who have been granted anonymity due to the currently business sensitive nature of this ruling.

“We have seen rulings change with regard to how OTC derivatives can be provided, but now it looks clear that advertising bans could appear across other European nations, led by France’s action” explained one particular electronic trading industry executive.

“It is entirely possible that Britain, Germany, Spain and Italy may follow, then other regions outside Europe that have a large FX trading presence, like Australia” he said.

“The interesting thing here is that the first announcement was quite significant and the measures were draconian. This was particularly noticeable in the UK recently, when the Financial Conduct Authority put forward its proposals to change the way in which CFDs can be offered, bearing in mind that most British companies, CFDs are a core business activity” 

A business development executive within another firm in London explained to FinanceFeeds today “With regard to this new ruling, I estimate that there would be a hit on the revenues, not just on the current ones but in future. We don’t know what the other companies are doing but from our peprspective, because it is no longer legal to advertise FX and binary options products yet CFD advertising is allowed, subject to certain conditions, most of our revenues are derived from CFD products because we are a British firm, therefore we have never based our core business activities on spot FX and binary anyway.”

This particular source explained a very important detail to FinanceFeeds with regard to the new French rulings on advertising. “Spot FX and binary options advertising has been completely outlawed in France, however CFD advertising is still permitted, as long as the CFD product fits specific criteria” he said.

“In order to be able to promote CFDs, a company needs to be able to provide a Limited Risk By Position account. Currently there are several brokers that think that if they just limit the risk overall, they will be compliant in France. Working to unerstand the regulatory requirements and then delivering them is not as straight froward a process as it seems, as there are many caveats” he explained.

“For example, a retail client needs to pre-set the stop loss on a CFD account, and cannot move the stop loss to increase the risk, however stop losses can be moved to the profit side” he said.

FinanceFeeds then spoke to a compliance manager at one of the large professional services companies in the UK, who explained the stipulations with regard to how a CFD product must be structured to meet the criteria that allows it to be advertised and promoted across media channels to retail customers in France. “Each stop loss needs to take into consideration other stop losses on other positions. Before setting stop loss, the client needs to be able to assess how much available collateral he has” said the compliance officer.

“As of this morning, those rules apply, and we hare happy that our accounts are fully compliant. If you look at the firms that hold 80% 90% of the market share in the European region, the companies whose primary business is CFDs (rather than CFDs in Britain and Spot FX in Europe and other regions) will be best positioned to turn this into an opportunity, rather than see it as a curtailment”

From FinanceFeeds point of view, British firms such as CMC Markets, IG Group, Plus500, ETX Capital and AFX Group have the majority of their customer base in the UK, hence the concentration on CFDs and spread betting via specialist, proprietary trading platforms.

Most of these companies have a client base in France and Germany, however that is mostly comprised of CFD traders, as opposed to overseas firms which have spot FX products on offer outside the UK and CFDs in the UK. Whilst FX companies can certainly continue to offer FX to French customers, they cannot promote it in any form or on any media, so that could cause a significant impact, however our client acquisition is not reliant on spot FX at all, therefore there is potential for us, as well as British peers that provide CFDs to European customers, to turn this into an opportunity.

For those intrinsically British companies that are not reliant on spot FX and whose core business is largely CFD based, it seems that there is potential, and the main perspective in London should perhaps be that rather than taking on board the ban and then having to live with it, to view it as a competitive advantage.