After the consensus conference in the Ministry of Finance

28 September 2017, in the Ministry of Finance, a conference was held, the purpose of which was to agree on the content of the bill amending the act on supervision over the financial market and some other acts. Together with Marcin Wenus, we participated in a meeting on behalf of the FxCuffs Foundation.

The bill is primarily aimed at increasing the level of security of financial market participants using financial services provided through online platforms. It introduces solutions to prevent fraud on the financial market by entities that are not regulated and unauthorized to provide financial services. In practice, this will mean, among others lowering leverage to 1: 25 and the ability to block Internet domains.

Check it out: Lever for Polish traders limited to 1: 25? The idea of ​​the government is very real

Consultations in this regard lasted until July 27, which resulted in 180 submitting comments, including the FxCuffs Foundation: official position.

Leverage 1:25 - Split environment

For several years, we have been observing the growing scale of various types of market abuse. The regulations introduced last year contributed to a significant inhibition of this practice, but did not eliminate the problem. There are still incidents of offering highly risky investments to inexperienced clients by companies and persons not under any control. The FxCuffs Foundation therefore welcomed the proposal to extend the powers of the Polish Financial Supervision Authority to the extent of the prevention instruments and their applicability:

Such offers are often found on websites hosted abroad, on which it is in vain to search for any contact details. The ability to intervene in such a case, through early warning and as a consequence of the domain blocking arrangements, will minimize client losses incurred as a result of dishonest service providers. The effectiveness of such a solution, along with the tightening of criminal liability for unauthorized activities in the field of trading in financial instruments, seems to be indisputable.

The introduction of effective solutions in this area, however, will not be easy, which is clearly shown by the divergence of positions and proposals for solutions.

However, the most emotions in the project are caused by the planned determination of the security deposit required for a given financial instrument at the 4% level. The Foundation, like other market participants present at the conference (including Trading Jam, the Chamber of Brokerage Houses), does not see any real improvement in the security and protection of investors in the presented regulations.

The Chamber notes that the changes proposed in the project are premature. In accordance with the ESMA communiqué of 29 June 2017, consultations are currently under way with this body regarding the adoption of uniform rules for the provision of OTC services by all entities on the European market regarding, among others, the amount of leverage offered to retail clients.

and next

Due to the planned by ESMA activities, draft FCA guidelines limiting the leverage to be introduced in 2017 were suspended pending the issuance of uniform market guidelines by ESMA. Thus, the draft law is premature, taking into account the planned activities of the European regulator and may limit the competitive position of Polish companies on the Community market.

The Office of the Polish Financial Supervision Authority also indicates that:

The projected further reduction of financial leverage offered by investment companies to retail clients on the OTC derivatives market, as indicated above, should be assessed positively. However, bearing in mind the continuing negative trends in this market, which indicate the maladjustment of selected financial instruments to the retail customer profile, the KNF proposes to supplement the provisions on the possibility of determining by the minister competent for financial institutions, by way of a regulation, a higher level of margin required than 4 % for orders to acquire or sell particular types of financial instruments and depending on the underlying, taking into account the risks associated with the type of financial instrument and underlying instrument.

The Polish Financial Supervision Authority also proposesconsidering the ban on the distribution and sale of so-called binary options, which are instruments with a very high level of risk and a similar nature to games of chance."

The unanimous postulate of introducing provisions aimed at a real improvement of client's capital security, i.e. protection against negative balances, should be considered a successful consultation.

A list of all comments is available on the website of the Government Legislation Center

At this moment it is difficult to predetermine anything. In terms of leverage 3 scenarios are possible: passing entries as in the current project, suspending work until the decision of ESMA, withdrawing from this idea, although the latter seems the least likely. Nevertheless, the work is still underway, and the Ministry of Finance will publish a conference report in the coming days. We will keep you informed about the effects on a regular basis.