Norway to follow ESMA’s schedule for banning binary options, restricting CFD offering
Although ESMA’s decisions are not binding for Norway, which is not a EU member, the Norwegian authorities have decided to follow the ESMA schedule for banning binary options and restricting CFD offering.
The Financial Supervisory Authority of Norway (Finanstilsynet) has decided to follow the schedule announced by the European Securities and Markets Authority (ESMA) for banning binary options and restricting the offering of CFDs to retail investors.
Let’s recall that the Norwegian regulator has been working on new rules for high-risk investment instruments and has earlier indicated that it was planning restrictions on such offerings. Given that Norway is not a member state of the European Union ( EU) but has a membership in the European Economic Area (EEA), any decision in this regard by ESMA is not binding in Norway.
Norway’s regulator, however, has apparently taken into account the resemblance of the measures it envisaged to introduce and the ones to be implemented by ESMA. As a result, Norway will also ban the offering of binary options effective July 2, 2018. The restrictions on the offering of CFDs will come into effect on August 1, 2018.
The Norwegian watchdog has, on several occasions, investigated foreign providers of binary options that have targeted Norwegian investors without a necessary license. The regulator notes that these entities use aggressive marketing methods and do not provide the necessary risk warnings.
Regarding CFDs, the rules in Norway reflect the ones outlined by ESMA. Stop-loss on positions, account protection, standardized warnings (disclaimers) and leverage restrictions are outlined. Under the proposals, the margin required will vary from 3.33% to 20% of the position value depending on the underlying asset of the CFD.
The regulator says that during the last three years, it has carried inspections of six securities companies whose main activities include offering of CFD trading services. Serious law violations have been uncovered in several cases and four of the six companies have as a result of these violations had their licenses taken away. The violations included misleading marketing, insufficient information about risk, and inadequate assessments of the suitability of an investment product / strategy for a particular customer.
As a part of these inspections, Finanstilsynet has assessed the business customers’ trading results. The calculations cover approximately 1,000 customers trading CFD over a period of between one and two years. Finanstilsynet found that 82% of these customers lost money.
