Spain to require CFD, binary options brokers to obtain handwritten “affidavit” from clients
Brokers’ customers willing to trade risky products like CFDs and binary options will have to testify that they agree that these are products difficult to understand.
The Spanish National Securities Market Commission (CNMV) is getting stricter about disclaimers and warnings about the risks associated with certain financial products like CFDs and binary options. The regulator has published a circular which aims to increase transparency of offering of complex financial products to investors.
In particular, the document explains that when signing a contract with a broker, a client will have to sign a special warning provided by the broker. The warning will have to state that:
“You are about to buy a product that is not simple and that can be difficult to understand: (the product should be identified). The National Securities Market Commission (CNMV) considers, in general, that due to this product complexity, its acquisition is not suitable for retail clients. However ZZZ (name of the entity) has evaluated the client’s knowledge and experience and considers that it is convenient for you. “
A second paragraph will be added in cases in which the retail customer faces financial commitments for an amount greater than the initial investment in the instrument:
“This is a product with leverage. You should be aware that the losses may be greater than the amount initially paid for this purchase.”
On top of that, clients will have to submit the following text in handwriting:
“Product difficult to understand. The CNMV considers that, in general, it is not suitable for retail investors”.
The aim of these measures is to enhance investor protection and to avoid situations in which clients of brokerages sign up for services and products that they do not understand.
The new requirements are set to come into force three months after its publication in the Official State Gazette.
Spain’s CNMV notes that the European Securities and Markets Authority (ESMA) is considering restrictions for the offering of binary options and CFDs for retail investors. The Spanish regulator says that when the new requirements, set by ESMA, are announced, it will amend the national rules accordingly.
Problems concerning binary options, CFDs and other complex products were at the core of many of the enquiries by Spanish investors in 2016, according to the Annual Report on Investor Complaints and Enquiries. The data show that the investors submitted 1,205 complaints and made 8,028 enquiries in 2016. Questions about investment firms headquartered in Cyprus operating under the freedom to provide services regime were among the key topics. Other matters at the heart of the enquiries related to binary options, CFDs and other complex products as well as the modification in the calculation of fees for securities transactions.
