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October 31, 2018

ESMA published, in the Official Journal of the European Union, the Decision 2018/1636 to renew and amend the temporary restriction in Decision (EU) 2018/796 on the marketing, distribution, or sale of contracts for differences (CFDs) to retail clients. Decision (EU) 2018/1636 enters into force on the day following that of its publication in the Official Journal. Decision (EU) 2018/1636 shall apply from November 01, 2018 for a period of three months.

Through Decision (EU) 2018/796, ESMA had restricted the marketing, distribution, or sale of CFDs to retail clients, with effect from August 01, 2018 for a period of three months. In accordance with Article 40(6) of Markets in Financial Instruments Regulation (MiFIR or Regulation (EU) No 600/2014), ESMA must review a temporary product intervention measure at appropriate intervals and at least every three months. The review of the restriction on CFDs has been informed by, inter alia, a survey among the national competent authorities on the practical application and impact of the product intervention measures as well as additional information provided by the national competent authorities and stakeholders. The national competent authorities detected only limited examples of non-compliance with the ESMA product intervention measures, which mainly related to the risk warnings. During the review period, ESMA did not obtain evidence contradicting its overall finding of a significant investor protection concern identified in Decision (EU) 2018/796.

ESMA has, therefore, concluded that the significant investor protection concern would persist if its decision to restrict the marketing, distribution, or sale of CFDs to retail clients is not renewed. Since the adoption of Decision (EU) 2018/796, the applicable existing regulatory requirements under Union law have not changed and continue not to address the threat identified by ESMA. Furthermore, since the adoption of the Decision, no national competent authority has adopted its own national product intervention measure under Article 42 of MiFIR. If the temporary restriction is not renewed, ESMA considers it likely that CFDs will again be offered without adequate measures to sufficiently protect retail clients against the risks related to those products that gave rise to the consumer detriment identified in Decision (EU) 2018/796. In view of these reasons, taken together with the reasons set out in Decision (EU) 2018/796, ESMA has decided to renew the restriction for a further three-month period to address the significant investor protection concern.

During the review period, ESMA obtained information that, in certain cases, CFD providers experience technical difficulties in using the abbreviated risk warning due to the character limits imposed by third-party marketing providers for communications other than through a durable medium or a web page. Therefore, a reduced character risk warning should be introduced in this renewal. The reduced character risk warning is not intended to replace the abbreviated risk warning. The new warning is envisaged to be used only for cases where the third party relied on by a CFD provider to market the product imposes a character limit that is not compatible with the number of characters comprising the risk warnings.


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Effective Date: November 01, 2018

Keywords: Europe, EU, Securities, Product Intervention Measures, CFDs, MiFIR, Decision 2018/796, Decision 2018/1636, ESMA

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