ESMA issues positive opinion on Cypriot restrictions for CFD offering to retail investors

Maria Nikolova

ESMA’s opinion is published shortly after it became clear that CySEC is abandoning the risk-based approach to CFD leverage caps.

MiFID II implementation likely to be set back even further

The European Securities and Markets Authority (ESMA) has published an opinion on product intervention measures taken by Cyprus Securities and Exchange Commission (CySEC). The opinion is published shortly after it became clear that the Cypriot regulator is abandoning its risk-based approach to CFD leverage caps, thus leaving its restrictions for offering CFDs to retail clients broadly the same as those once introduced by ESMA.

Hence, there is nothing astonishing in the fact that ESMA’s opinion issued today is supportive of CySEC’s actions. ESMA’s opinion concludes that the proposed measures are justified and proportionate.

Let’s recall that, CySEC had proposed to introduce stricter leverage limits for those retail clients falling within the grey area of the target market and slightly higher leverage limits for the retail clients falling within the upper tier of positive target market. Put simply, various leverage caps would have been applied to various categories of retail clients. But CySEC has abandoned this plan.

Last week, however, CySEC said it received feedback from 15 respondents comprised of Investment Firms, one Industry Association, one National Competent Authority (“NCA”) of another Member State and one retail investor. The retail investor requested CySEC to reconsider its approach and to refrain from introducing any measures particularly in relation to leverage. The NCA raised concerns in relation to the proposed divergence from ESMA measures under CP-02-2019, particularly in relation to whether such divergence will create confusion amongst residents of the specific Member State as to the content of restrictions that are applicable to them.

In relation to the position of the NCA, CySEC said it shared the concerns in relation to the cross-border application of measures and the confusion that might be created by the adoption of different measures across the European Union by the NCAs. To this end, CySEC said it believes that the most appropriate way forward is to structure its measures in a way that incorporates the content of the measures taken by other NCAs when firms falling under its remit market, distribute or sell CFDs in the territory of such Member States.

As a result, the Cyprus National Product Intervention Measures (‘CyNPIMs’) now envisage the adoption of the same leverage limits for all retail clients, with ranges from 2:1 to 30:1 dependent on the type and volatility of the underlying asset:

  • 30:1 for major currency pairs;
  • 20:1 for non-major currency pairs, gold and major indices;
  • 10:1 for commodities other than gold and non-major equity indices;
  • 5:1 for individual equities and other reference values;
  • 2:1 for cryptocurrencies.

ESMA’s opinion also concludes that it is necessary for the national competent authorities of other Member States and the Central Bank of Cyprus to take product intervention measures that are at least as stringent as ESMA’s measures.

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