ESMA explains CFDs and Forex Brokers Passporting provisions under MiFID


ESMA explains CFDs and Forex Brokers Passporting provisions under MiFID in its updated Q&A. Also, it explains cross-border provision of services in detail.

31 March, AtoZForex The European Securities Markets Authority (ESMA) has today issued an updated Q&A on CFDs and other speculative products. The document is aiming to reach the providers of CFDs and Forex and Binary Options brokers. Moreover, ESMA reaches out to national regulators via this document.

ESMA explains CFDs and Forex Brokers Passporting provisions

The official document underwent certain changes. One of such – a new section explaining the regulator’s view on passporting and the cross-border provision of financial services to retail clients. Additionally, the official publication on ESMA’s website states:

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“The Q&A includes a new question and answer in section 2, which addresses conflicts of interests arising from business models that firms offering speculative products to retail investors may adopt. ESMA clarifies the conflicts of interest aspects that national competent authorities should consider. These related to cases, where a firm uses other parties to perform activities on its behalf.

Moreover, it highlights that firms must manage conflict of interests that may arise as a result of remuneration between the parties.”

Also, the document is tackling the use of affiliates by brokers. It includes the guidance to national monitoring officials on how to supervise such entities.

ESMA updated Q&A Key points

Following on this, ESMA states that the investors’ community might be under the risk. This is due to the fact that investors may not fully understand the complexity of the speculative products. Furthermore, the EU regulator stresses:

“There is also a considerable degree of cross-border activity across Europe in these products. Many competent authorities have concerns about the protection of investors in this area.

Thus, the purpose of the Q&A is to promote common supervisory approaches and practices in the application of MiFID and its implementing measures to key aspects that are relevant when CFDs and other speculative products are sold to retail clients.”

As ESMA explains CFDs and Forex Brokers Passporting provisions, some of the key points of the updates include the following:

- Firms cannot provide MiFID services through their representative offices overseas;

- Brokerages can only advertise the brand of the firm and conduct market research;

- Affiliates need to fulfill the regulatory requirements at all times;

- Brokers are urged to closely monitor the activities of any third parties that have any connection to their operations;

- The regulatory bodies of the EU are urged to closely supervise the activity of the brokers outside of the home country.

You can find the official document of ESMA below. The clarification of CFDs and Forex Brokers Passporting provisions under MiFID is on the pages 84 -96.

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