ESMA’s restrictions for CFDs and binaries to remain in force in the UK after exit day, FCA says

Maria Nikolova

UK firms are required to comply with ESMA’s measures until they expire in April 2019.

The UK Financial Conduct Authority (FCA) has just posted a statement on its website concerning the application of the European Securities and Markets Authority’s (ESMA) temporary intervention measures prohibiting binary options and restricting contract for difference products (CFDs) sold to retail clients.

The FCA explains that these measures will become part of UK domestic law on exit day as part of the EU (Withdrawal) Act. UK firms are required to comply with ESMA’s measures until they expire in April 2019.

The regulator continues to prepare for a range of scenarios for the UK’s withdrawal from the EU. This includes one in which the UK leaves the EU on March 29, 2019 without a withdrawal agreement and implementation period having been ratified between the UK Government and the EU.

ESMA’s decision notices that renew the temporary restriction on the marketing, distribution or sale of CFDs to retail clients and the temporary prohibition on the marketing, distribution or sale of binary options to retail clients will form part of UK law if EU law ceases to apply in the UK on March 29, 2019.

Firms are therefore required to comply with ESMA’s decision notices until they expire on April 1, 2019 for binary options, and April 30, 2019 for CFDs. The FCA’s supervision of firms in this sector will continue to focus on compliance with ESMA’s temporary product intervention measures.

The FCA published two Consultation Papers (CPs) in December 2018 to make ESMA’s temporary product intervention measures permanent in the UK. The FCA’s proposed interventions are the same in substance as ESMA’s, although the UK regulator is also proposing to apply its rules to closely substitutable products.

The FCA plans to make its decision on final rules so that it is able to publish a Policy Statement and any final Handbook rules in March 2019 for binary options, and April 2019 for CFDs and CFD-like options. The FCA anticipates its finalised rules to apply very shortly after publication to coincide with the dates that ESMA’s restrictions expire.

If, for any reason, the FCA is unable to finalise its domestic approach prior to ESMA’s existing interventions ceasing to have effect in the UK, it will consider adopting temporary product intervention measures to replicate ESMA’s. This will ensure no loss of protections for UK consumers in a period between ESMA’s existing interventions ceasing to have effect in the UK, and finalising its domestic approach.

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