ESMA controls brokers for professional clients

The European regulator, ESMA, has published an official announcement regarding the prolongation of restrictions on the Forex / CFD market for another 3 months. This decision is not a surprise, because it was known a month ago. However, the message itself is also extended with comments in relation to the actions of brokers in relation to the guidelines introduced.

The ESMA guidelines will be permanent?

Today, 6 is equal to the month from the entry into force of product restrictions for FX / CFD instruments. By the end of March, we will know the decision to extend them for another 3 months. Most market participants, however, have no illusions that the restrictions will stay with us for much longer. The British regulator, FCA, decided to maintain the internal guidelines on a permanent basis, and the German BaFin introduced a ban on binary options, although the ESMA guidelines themselves regulate this already.

Professional client - abuses of brokers

In the published communication, ESMA reported that it regularly follows the conduct of Forex brokers and observed that some companies violate selected guidelines. Mainly it's about the opportunity customer status changes from retail na professional, which in practice opens the door for investors to receive higher leverage than 1: 30. During the 2018 year, the number of clients with professional status increased significantly. This does not mean that all such decisions have been wrongly issued, but from the observation of the regulator, it appears that the abuses are present.

Reservations are also made to brokers who are licensed within and outside the EU and offer the transfer of bills outside European jurisdiction. This problem is also recognized by brokers who operate locally

Marek Wołos, expert of the Chamber of Brokerage Houses for OTC markets:

“IDM points out that the last months on the market, after the introduction of ESMA's intervention, in many respects showed the ineffectiveness of the intervention. Moreover, the intervention revealed, in line with previous concerns, the risk of regulatory arbitrage, the outflow of clients to entities operating outside the EU, and weakened domestic brokerage firms that cannot compete with foreign firms on their offer. Further limitation of the competitiveness of the domestic industry exposes domestic clients to greater investment risks related to using the offer of entities outside the supervision of the Polish Financial Supervision Authority. "

In addition to the risk of customers fleeing outside the EU, the optimistic effect of implementing ESMA regulation should also be noticed. In the report of Polish brokerage houses for the fourth quarter of 2018 on the profitability of traders, record-breaking good results were recorded. In the case of currencies and goods, it happened that the percentage of earners exceeded 50%. Details we present in a comprehensive report HERE.