ESMA asks EC for advice on cross-border application of CFD restrictions, binary options ban

Maria Nikolova

ESMA requests clarification on the application of product intervention measures to firms acting on a cross-border basis when different Member States take overlapping product intervention measures.

The European Securities and Markets Authority (ESMA) today published its final Report on product intervention requirements under MiFIR.

The temporary product intervention measures of ESMA started to apply on July 2, 2018 for binary options and August 1, 2018 for CFDs. Following three consecutive renewals, these temporary measures expired on July 1, 2019 for binary options and July 31, 2019 for CFDs. Nearly all National Competent Authorities in the EU have now taken national product intervention measures in order to address, in a permanent way, the investor protection concerns arising from these products.

In the final report, ESMA provides advice to the European Commission and also seeks clarification on certain matters. These matters include the interaction of national product intervention measures.

Article 42(1) of MiFIR states that a competent authority may prohibit or restrict the marketing, distribution or sale of a product in or from that Member State. The reference to ‘in or from’ could suggest that an NCA has the possibility to take product intervention measures that only apply in that member state (and not from), and vice versa.

Furthermore, if multiple NCAs taking product intervention measures in and from their member states, it may not be easy for market participants or even clients to assess which product intervention measures they are subject to.

In this context, ESMA published updated Q&A that provide for a general orientation on which national product intervention measures a firm should apply in case of cross-border provision of investment services when the measures under consideration both apply “in” and “from” the Member States involved.

ESMA asks the European Commission for advice on this matter. In particular, ESMA says it would appreciate if the European Commission could further clarify the application of the product intervention measures when multiple Member States take overlapping product intervention measures. This becomes particularly relevant when the content of national product intervention measures diverges.

Furthermore, the possibility to take measures in and from a Member State is also relevant for the distribution of responsibilities between home and host NCAs with respect to the supervision and enforcement in relation to compliance with an NCA’s product intervention measures and measures taken by other NCAs, ESMA explains.

Regarding other matters, ESMA warns that the short-term nature of the measures may be problematic. For product intervention measures taken to tackle a significant investor protection concern, considering the obligation to analyse the product concerned for the taking of the initial measure, it is unlikely that circumstances would have changed sufficiently in relation to that product for the concern to no longer be significant after a six-month period, the regulator said.

ESMA says it would welcome the introduction of a legal mechanism to consolidate pan-European product intervention measures and make them permanent (for example by a legal act of the European Commission consolidating temporary measures after a given period). Alternatively, if it is not possible for the EC to consolidate temporary measures, ESMA would welcome a further extension of the temporary nature of the product intervention powers to 18 months.

Regarding the possibility that ESMA would implement product intervention measures in other areas, ESMA says it is aware that some NCAs are consulting on potential product intervention measures concerning certain financial instruments linked to crypto assets. ESMA will continue monitoring markets and will exercise its coordination role in relation to measures proposed by NCAs.

“If, based on its monitoring activities, ESMA becomes aware that there is an issue that causes a significant investor protection concern, a threat to the orderly functioning and integrity of financial markets or commodity markets or to the stability of the whole or part of the financial system in the Union, ESMA will consider the possibility of taking product intervention measures”.

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