May 01, 2019 | AtoZ Markets - The European Securities Markets Authority (ESMA) has published another extension to its rules on promoting and marketing CFDs across the European Union yesterday. The news does not come as a surprise since it is the third time ESMA has renewed its restrictions since it was first introduced on the European trading market.
ESMA renews CFDs marketing rules in the EU
With the announcement of the renewal, the regulator also urged national regulators of the EU member countries to adopt permanent measures for protecting investors.
From May 01, restrictions on the European Forex or CFD market, including reduction of the maximum leverage to 1:30 which will be valid for the next 3 months. The recent restriction will apply for the next three months, and at the end of June we will find out whether it will be renewed again.
Moreover, there is still debate about how effective the new regulations are in terms of customer protection. However, as ESMA highlights the data received from the national regulators has been consistent with the desired effects of the restrictions.
The new framework for regulating retail brokerages was originally imposed in last August and renewed three times. As ESMA does not have a right to turn the temporary measures into permanent it is pushing the local regulators to follow up and turn the restrictions into law.
It is clear that the financial regulator is committed to enforcing the strict regulatory framework in every EU country and calls the national regulators to adopt measures in a timely manner.
EU countries following ESMA’s call
Some of the national regulators have already adopted ESMA restrictions fully and have made them permanent. The first ones to follow the regulator’s lead last year were the regulator of the UK's FCA, the financial authority of Germany, BaFin, and later Financial regulator of Netherlands. In addition to that, France’s Financial regulator AMF also announced that it is considering to make the restrictions permanent. Poland, on the other hand, is possibly going to create an intermediate group of traders between retail and professional investors.
Moreover, Other EU member countries have not made any announcements related to adopting a new regulatory framework permanently. However, it is expected that the major countries will adopt it in the next quarter.
The European brokerage industry has certainly due to ESMA's regulations, where most companies experienced a decline in profitability. Some brokers had to decide to withdraw from the retail market or total migration and focus on the Asian market.
Turning to offshore FX brokers
While the EU countries are considering making ESMA restrictions permanent, offshore brokers are actively targeting the EU residents and are already seeing the growth of European customers. Australia is already requesting a legal opinion on the process of accepting EU customers.
Moreover, the Australian Securities and Investment Commission (ASIC) announced about it in the official communication with the Australian brokers. Since the ASIC regulated brokerages are having a fine reputation among the EU traders, they have been a traditional alternative choice for the European traders. However, they have other alternatives too.
For example, most of the brokers are offering 1:100 leverage to their clients, when the EU brokers can only offer 1:30. Offshore brokerages are also trying to attract customers with high leverage offerings and are marketing their services aggressively within the EU.
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