Spain's financial regulator, the CNMV is threatening to ban the United Kingdom and Cyprus Forex and CFD brokers due to irregularities.
August 25, 2020 | AtoZ Markets – The CNMV has changed gears with a more aggressive tone alerting and threatening several exchanges that could see some 3,500 companies in the sector end up closing their activity due to a ban by the Spanish regulatory body.
Spain looking to ban Cyprus and UK CFD brokers
The threat of Spain to ban forex brokers affects very specific companies. The problem resides in companies that are active in Spain but whose branch is in another country of the European Union. Specifically, the CNMV mentions companies that are based in the United Kingdom and Cyprus.
The regulator warns that these companies take advantage of the failed surveillance of other member countries. These brokers take advantage of having obtained the community passport and therefore have the green light to carry out activities in any other member country. There are about 3,500 companies that operate with the community passport. As a result, the CNMV has declared that it has its sights set on all of them.
Monitoring that activities comply with the law, such as professional ethics, depends on the country of origin and this is where the CNMV warns about its ineffectiveness. The regulatory body does not have the power to control or force any action against companies that do not have an office in Spain.
Illegal activities in Spain with international protection
The regulator said it is looking in particular at brokers which seem to habitually engage in the following practices:
- Aggressive advertising
The watchdog of the Spanish market warns of several illegal practices with very aggressive advertising encouraging users to operate by publishing articles published in the media that present a high promotional and advertising component of the activity carried out by these entities."
Read also: CNMV Issues Warning on 23 New Spanish Forex Scammers
The CNMV also complains that several of these companies claim that it is possible to operate without commission. However, in reality, " it is not adequate, since the costs implicit in the transactions are not reported ".
- Social trading and affiliate programs
The entity denounces a new format known as social trading. This consists of individuals investing in the portfolio of another investor of which he is supposedly a master. The regulatory entity denounces how many of these investors are not registered agents and therefore can pose an additional danger.
Many of these firms contain affiliate programs that reward their clients with a bonus by attracting new clients to the platforms. According to the CNMV, this may have a collateral effect by attracting clients that are not accepted by the Spanish regulatory body as well as creating a kind of hidden pyramid.
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