Impact of France AMF Advertising Ban on retail traders

There have been a lot of discussions and confusion in the market about the France AMF Advertising Ban. In order to clarify on this matter, AtoZ Forex has interviewed an expert.

11 January, AtoZForex France’s Autorité des marchés financiers (AMF) has invoked new regulations. The France AMF advertising ban is directed at brokerages offering Forex and Binary Options. The rules also restrict how companies can advertise and market contracts for difference (CFDs) to French citizens.

The three issues that the AMF’s decision touch in regards to CFDs are advertising, negative balance protection and the hard guaranteed stop loss. For further clarification on the French case, AtoZ Forex has interviewed George Giannoulakis, the CEO and Founder of InvestCor Corporate Ltd, a CySEC licensed corporate service provider for investment firms, alternative investment funds and payment providers.

France AMF Advertising Ban: Impact on CFDs advertising

Polina Zelikova: "Did the AMF imposed a ban or restrictions on advertising of CFDs? Also, do you expect the AMF's decision will have a big impact on the brokers?

George Giannoulakis: "The issues set out by the French regulator are in a certain sense not new. With respect to the AMF’s supposed restrictions on advertising of CFD’s, this does not appear to constitute a “ban”. Rather, it is the implementation and enforcement of present regulatory conditions. In order to ensure that the advertising is done in line with the permitted parameters. As such, for regulated companies which are compliant, we do not expect that this will have much impact on them."

AMF's concept of negative balance protection

Polina Zelikova: "In terms of the negative balance protection rules, do you think that other EU regulators will follow AMF's lead? Does it pose any constraints for the other regulators to adopt the same regulation?"

George Giannoulakis: "Negative balance protection is widely spread within the financial sector and a number of investment firms already apply this. Therefore, we do not foresee any major issues in the adoption of this by other European regulators.  Some European Regulators have recently implemented or plan to adopt the 'negative balance protection'. They are the FCA (UK), BaFin (Germany), CySEC (Cyprus). Therefore, it can be argued that other European Regulators may choose to follow the same principle to form a unified code of customer protection.

However, the regulators may inadvertently be creating systemic risk depending on how this is implemented. If this applies universally to only retail clients but not to a broker with STP’s retail clients then the STP broker may be at risk. As he will provide the retail client the negative balance protection. But the broker’s liquidity provider will not apply the same principle to him. As a result, it may leave the broker exposed and only serve to increase the capital requirements for the STP broker. It will make a cost sensitive business even more expensive. For example, what would happen if we have a repeat of the circumstances like when the SNB removed the cap on the Swiss franc?"

Consequences of the hard guaranteed stop loss

Polina Zelikova: "How about AMF's hard guaranteed stop loss, do you think that have a negative impact on the retail traders?

George Giannoulakis: "The third aspect of the hard guaranteed stop loss, should not create any barriers to the retail clients wanting to trade. However, this measure would have not been effective in circumstances such as the above mentioned SNB scenario. Where the markets saw great volatility and/or no liquidity. Also, the more stop losses are triggered the more often retail clients will have to trade. It will increase the volume of the transactions and the cost to the retail client.

Respectfully, it appears that the comments that the regulators are inadvertently creating greater systemic risk may have some merit. Furthermore, increasing the hurdles in dealing with retail clients may only encourage unregulated brokers. As it creates an uneven playing field for the regulated brokers competing lawfully in Europe."

An analogy that sums it all up

Polina Zelikova: Concluding the interview, how would you describe the current situation of the EU regulators and its actions taken?

George Giannoulakis: "Unfortunately, the regulators' actions are akin to an adult trying to temper an unruly bunch of youngsters. But have not yet figured out how to handle them."

In case you have questions for George Giannoulakis, related to the France AMF CFDs advertising ban, let us know down in the comments section.  

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