Norway proposes to ban binary options, restrict CFD offering to retail customers
Norway, which is not a member of the European Union, takes measures to legislate against high-risk investment products.
The Financial Supervisory Authority of Norway (Finanstilsynet) is planning to introduce restrictions on the offering of CFDs while banning any marketing and offering of binary options to retail investors. The regulator has published a consultation paper, which outlines a set of proposed changes to Norway’s laws with respect to securing better investor protection from high-risk investment products.
In the paper, Norway’s regulator notes the recent consultation launched by ESMA into the new rules for CFD and binary options offering to retail clients. 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 will not be binding in Norway. Only after MiFIR has been incorporated into the EEA Agreement, such decisions may be binding.
Norway is now planning to implement national regulations close to ESMA’s position.
The Norwegian regulator proposes that marketing, selling and distribution of binary options to non-professional customers in Norway or from Norway is prohibited. The watchdog emphasizes that it 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 proposals reflect the ones made 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.
Regarding its experience with CFD providers, 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.
Given these results, the regulator proposes the following warning that should accompany all marketing and offering of CFDs:
“CFDs are complex financial instruments and investing in them involves high risk of losing money. Between 74 and 89% of non-professional customers lose money when they trade these products. You need to consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. “
The consultation closes on March 26, 2018.
