In light of Circular No: C602 recently issued by the Cyprus Securities and Exchange Commission (CySEC) concerning the Spanish National Securities Market Commission’s (CNMV) Resolution of 11 July 2023 on product intervention measures relating to Contracts for Differences (CFDs) and other leveraged products, it is imperative for both investors and financial service providers to grasp the newly introduced guidelines. This article aims to offer a comprehensive insight into the key aspects and implications of the CNMV’s resolution.
The CNMV’s Resolution of 11 July 2023 builds upon previous measures enacted in 2019 and focusing on concerns related to the marketing, distribution, and sale of CFDs and other leveraged products to retail investors in Spain. Despite earlier interventions, persistent aggressive marketing practices and high-risk investments have necessitated the implementation of additional protective measures.
The resolution is scheduled to become effective twenty days after its publication in the Spanish Official State Gazette. Current sponsorship or brand advertising agreements are permitted to continue until their initial expiration, within a maximum period of 12 months from the publication date.
Key Measures for CFDs:
The CNMV’s resolution introduces vital measures to ensure the safety and security of retail investors. These measures include:
- Leverage Limitation: The CNMV has set limits on leverage ratios for different asset classes, such as 1/30 for relevant currencies, 1/20 for other currencies, gold, and relevant equity indices, and 1/2 for crypto assets, among others; thereby mitigating potential losses.
- Close Position Protection: Implementation of close position protection to safeguard retail customers from significant losses.
- Protection Against Negative Balances: Adequate protection to prevent retail investors from incurring losses exceeding their initial investment.
- Prohibition of Certain Practices: Stricter regulations prohibiting the offering of excluded payments and non-monetary benefits concerning CFDs.
- Mandatory Risk Warning: Inclusion of clear and comprehensive risk warnings in all marketing materials to highlight the high-risk nature of CFD investments.
Additional Measures for CFDs:
In addition to the key measures, the CNMV’s resolution includes further restrictions to ensure investor protection:
1. Prohibition of Certain Marketing Practices for CFDs:
- Rewards and Remuneration Prohibition: Providers are prohibited from offering rewards or remuneration to customers, marketing networks, or third parties based on the number of clients acquired, cash deposits, or losses by clients.
- Use of Call Centres: Providers are not allowed to use call centres to contact clients or potential clients to promote CFDs.
- Software Restrictions: The use of software where providers’ remuneration is determined based on client deposits or losses is prohibited.
- Credit Card Deposits: Acceptance of cash deposits using credit cards is prohibited.
- Prohibition of Advertising Communications: The marketing, distribution, and sale of subject instruments and services by means of advertising communications aimed at retail investors in Spain, including potential clients, shall be prohibited.
Please note that marketing communications prohibited will be considered to include those:
- Redirecting to a website that offers instruments or subject services;
- Sending to a contact form, an application download, or any other kind of tool intending to put the client in touch with investment service providers that offer said type of instruments or services;
- Offering training, technical seminars, courses, or sessions to the general public whenever such offers are related to the subject services or instruments, as well as similar training demo accounts or tools for retail investors or the general public that encourage investing in these, whether promoted or held by the regulated entities or by related or affiliated parties, regardless of whether they are free or have a token charge.
2. Scope of Application for Leveraged Instruments:
- The guidelines are applicable to entities authorized to provide investment services in Spain, irrespective of their origin, regarding the marketing, distribution, and sale of CFDs and other leveraged products to retail investors in Spain. It also extends to activities by Spanish firms in other Member States, especially in the case of CFDs with crypto-assets as underlying assets.
3. Specific Measures for Other Leveraged Instruments:
- For instruments beyond CFDs, such as futures and options, there are limitations on leverage and mandatory close position protection measures. These measures are designed to protect retail customers from excessive losses.
4. Periodic Review and Revocation of Measures:
- The measures adopted in this resolution may be reviewed annually and revoked as per the provisions of Article 42.6 of Regulation (EU) No 600/2014 of the European Parliament and of the Council, of 15 May 2014, on markets in financial instruments.
The measures outlined in the CNMV’s resolution, effective from 3 August 2023, apply universally to all entities authorized to provide investment services in Spain. These regulations pertain to any marketing, distribution, and sale of the specified instruments and services to retail investors in Spain. It is important to note that these guidelines are applicable irrespective of the origin of the investment firm marketing and distributing such products. This includes entities operating under the freedom to provide services without a physical establishment in Spain. The CNMV’s reach encompasses both local and international entities, emphasizing a comprehensive approach to investor protection within Spain’s financial markets.
CySEC emphasizes the importance for all CIFs engaged in marketing, distributing, and selling CFDs and similar leveraged products to retail investors in Spain to promptly adopt necessary actions and strategies to comply with the CNMV’s Resolution.
The CNMV’s latest resolution marks a significant leap in ensuring investor protection within Spain’s financial markets. Through rigorous regulations on CFDs and leveraged products, the CNMV aims to minimize risks for retail investors and eliminate aggressive marketing practices.