CySEC urges CFD brokers to comply with new Spanish regulation
The Cyprus Securities and Exchange Commission (CySEC) released an advisory notice for all Cyprus Investment Firms (CIFs), referencing the CNMV’s recent resolution about CFDs and other leveraged products that target retail investors in Spain.
As per CySEC’s circular, the Spanish regulator has explicitly prohibited the advertising of CFDs and other leveraged instruments to retail investors. This measure is said to shield retail investors from misleading information and the high-risk nature associated with these financial products.
Additionally, CNMV places restrictions on certain bonus offers and sales tactics used in the promotion of these instruments. The watchdog has also implemented intervention measures regarding the marketing, sale, and distribution of other leveraged products to retail investors.
Last year, the CNMV issued a circular that adopted an aggressive tone and threatened some European brokers that they could end up closing their activity in Spain, as the watchdog was fed up with their unfair practices.
At the time, the Spanish regulatory body said it mainly examines CFD brokers based in Cyprus, and that it has its sights set on those who use overly aggressive tactics and practices. Additionally, the CNMV’s tightening covers activities involving the acquisition of retail clients, including information provided through marketing channels.
These regulations, which came into effect on 3 August 2023, are binding on all entities approved to offer investment services within Spain’s borders.
A noteworthy aspect of this resolution is its wide-reaching scope. It applies to any investment firm marketing, distributing, and selling speculative to Spanish retail investors, irrespective of the firm’s origin. This includes entities without a physical presence within Spain, including that benefit from the passporting rules, which enable firms authorised in any EU state to trade freely in any other with minimal additional authorisation.
In light of these developments, CySEC urges all CIFs involved in selling CFDs to Spain’s retail investor sector to ensure their immediate compliance with the CNMV’s directives.
Recently, the CNMV issued a circular setting a host of new rules regarding trading costs and risk disclosure, Leverage and advertising requirements. In essence, the new guidance concerns companies that offer Forex, contracts for difference (CFDs) and other speculative products among retail investors in Spain.
In particular, the CNMV notes that any broker offering ‘excessive leverage’ greater than 10:1 needs to explicitly warn investors that it believes that such products are not appropriate for retail investors due to their complexity and the risks involved.
Operators are also required to ensure that clients are aware of the estimated cost in case they decide to close their position immediately after entering into the transaction. Furthermore, the CNMV expects that the CFDs and forex brokers will warn their clients that they can lose more than they originally invested due to the nature of margin trading.