Dutch financial regulator says binary options, high-leverage CFDs should be removed from market
Merel van Vroonhoven of the Dutch AFM slams binary options and high-risk CFDs but calls for further consideration of rules for ICOs and cryptocurrencies.
Merel van Vroonhoven , Chairman of the Executive Board of the Dutch Authority for the Financial Markets (AFM), has slammed binary options and high-leverage CFDs and has called for drastic measures regarding these products.
In a speech, delivered today at the Second annual conference on FinTech and Digital Innovation: Regulation and Disruption, Ms Van Vroonhoven said
“Regarding binary options and highly leveraged CFDs, my view is clear. These products should be removed from the market as quickly as possible”.
She added that the AFM and ESMA continue to strive for more measures to protect retail investors putting money or considering putting money into binary options and CFDs. And MiFID II gives regulators more options for product intervention, she noted.
Let’s recall that ESMA is now considering new rules for CFD and binary options offering to retail investors. In relation to binary options, the regulator is considering a prohibition on the marketing, distribution or sale of binary options to retail clients. ESMA has stated that such a measure reflects the inherent features of the product that are unlikely to be sufficiently addressed through certain restrictions on the product (such as minimum duration contract periods).
The proposed rules for CFDs include new leverage limits. The proposed leverage limits range from 30:1 to 5:1 to reflect the historical price behaviour of different classes of underlying assets.
Regarding initial coin offerings and cryptocurrencies, Merel van Vroonhoven suggested a more moderate approach. She said that an immediate ban on these type of activities would not be the best option, as it would not reflect the international nature of this market.
She criticized the manipulative marketing techniques used by companies offering cryptocurrencies and related products. Ms Van Vroonhoven mentioned that “gamification” techniques target children and teenagers who are also tempted to invest in Bitcoin.
She stressed that it is important to remember that people are not the homo economicus that they think they are. People’s behaviour in economic terms is rational only to a limited extent. “The way in which these predictable ‘imperfections’ are abused is the new challenge for our legislature and our supervisors”, she said.
“This is why the AFM will work with experts on addiction next year. If you want to exercise supervision effectively, you have to understand how people are led astray”, Merel van Vroonhoven says.
The regulator is already forming multi-disciplinary teams including data experts, scientists and psychologists to work in this domain.
