FCA consults on changes regarding post-Brexit rules for CFDs and binary options

Maria Nikolova

The changes in relation to rules covering binary options and CFDs reflect the assumption that UK firms will lose passporting rights after exit day.

The UK Financial Conduct Authority (FCA) has earlier today published its latest Quarterly Consultation Paper which outlines a set of proposed amendments to the Handbook. Some of the proposed changes are related to the UK’s withdrawal from the European Union, as the UK regulator has to fix deficiencies in any affected Handbook provisions.

The list of proposed changes in this Consultation Paper concerns, inter alia, Conduct of Business Sourcebook (COBS) 22.4 and 22.5. That is, the rules that ban the offering of binary options in the UK and that impose restrictions on the retail marketing, distribution and sale of contracts for differences (CFDs) and similar speculative investments.

In particular, the proposals represent consequential changes in relation to binary options and CFDs to reflect the assumption that UK firms will lose passporting rights after exit day. Additionally, the rules will not apply to EEA firms unless they have temporary permission, are in the financial services contracts regime as a supervised run-off firm or are a contractual run-off firm.

This means that the rules will not apply to EEA firms which are operating in the UK outside of those regimes. For instance, the rules will not apply to an EEA firm operating in the UK through the Overseas Persons Exclusion.

As a result of the changes, EEA firms operating outside the temporary regimes will be treated in the same way as third country firms.

The rules will automatically apply to temporary permission firms, supervised run-off firms and contractual run-off firms.

Let’s recall that, in July this year, the European Securities and Markets Authority (ESMA) published its opinion with regard to the product intervention measures proposed by the FCA. ESMA said the national measures outlined by the FCA are justified and proportionate except for:

  • (i) the FCA’s proposal not to apply the national restrictions to CFD-like option providers authorised in other Member States other than through a UK branch or tied agent in respect of the sale or distribution of those products to UK retail clients; and
  • (ii) the FCA’s proposal to apply a 30:1 leverage limit for CFDs referencing certain government bonds, instead of the 5:1 leverage limit in ESMA’s measures.

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