The KNF, despite the opinion of ESMA, introduces the 1 lever: 100 in Poland

The Polish Financial Supervision Authority today (ie 1 August 2019) has taken a unanimous decision to implement regulations that will enable retail customers to obtain leverage of 1: 100 for Forex / CFD instruments. This is to enable the introduction of a new category: an experienced retail customer.

1 leverage: 100 in Poland

Yesterday, ESMA's product intervention expired, limiting the leverage in the European Union to a maximum of 1: 30. Also yesterday We wrote about a negative assessment of the KNF idea by a pan-European regulator. Today, Polish supervision, against the unfavorable opinion of ESMA, decided to implement their ideas.

Limitations introduced by the KNF consist in that the CFD supplier is required to provide retail customers with:

1. Protection of the initial security deposit, i.e. applied limits on leverage for a given type of investment;
2. Protection by closing the position - the CFD supplier is obliged to close the most lossy customer transactions in the event of a reduction in the value of funds paid to an account below a certain level;
3. Protection against negative balances, i.e. prevented the client from incurring losses exceeding the value of paid cash;
4. Access only to CFD materials and advertising that will include an appropriate warning about the risks associated with investing in CFDs and will not provide any financial or non-financial bonuses to encourage customers to invest in CFDs.

The introduction of the additional requirements mentioned above when offering CFD retail clients aims to reduce their exposure to significant losses from investing in these derivatives. As regards the protection of inexperienced clients, the PFSA shared the arguments of ESMA, ie the European Securities and Markets Authority.

An experienced customer

The decision taken by the KNF also introduces the category of an experienced retail client. The condition for obtaining the status of an experienced retail client, upon a written request, is the total fulfillment of the following conditions:

1) a retail client has concluded in the last 24 months:

a) CFD opening transactions with a nominal value of at least the PLN equivalent of EUR 50.000 each, with a frequency of at least 10 opening transactions per quarter during four quarters; or
b) CFD opening transactions with a nominal value of at least the PLN equivalent of EUR 10.000 each, with a frequency of at least 50 opening transactions per quarter during four quarters; or
c) CFD opening transactions with a total nominal value of at least the PLN equivalent of EUR 2.000.000, with the client entering into at least 40 opening transactions per quarter during four quarters;

2) the retail client has appropriate knowledge of derivatives, including CFDs, supported by:

a) obtaining appropriate professional certificates, in particular: Investment Adviser, Stockbroker, Chartered Financial Analyst, Financial Risk Manager, Professional Risk Manager, ACI Dealing Certificate, ACI Diploma, or appropriate professional education; or
b) completion of a minimum of 50 hours of training on derivatives, including CFDs, confirmed by obtaining relevant certificates or confirmations issued on the basis of verification of knowledge by competent training entities, during the last 12 months; or
c) confirmation that the client performs or has performed activities or works or worked under an employment contract or other contractual relationship constituting the basis for performing the function, for at least one year in a position that requires professional knowledge of concluding transactions in the field of CFDs or other derivatives .

At the present moment it is not known what the verification process will look like, and, especially in the case of 2.a), what training will be taken into account by the PFSA.

An experienced retail customer will be able to offer CFDs with a higher level of leverage while applying the remaining restrictions. The CFD supplier may use as a minimum initial margin deposit 1% of the face value CFD (lever 1: 100) when the underlying instrument is:

1st currency pair,
2.one of the following equity indices:

• Financial Times Stock Exchange 100 (FTSE 100);
• Cotation Assistée en Continu 40 (CAC 40);
• Deutsche Boerse AG German Stock Index 30 (DAX30);
• Dow Jones Industrial Average (DJIA);
• Standard & Poors 500 (S&P 500);
• NASDAQ Composite Index (NASDAQ),
• NASDAQ 100 Index (NASDAQ 100);
• Nikkei Index (Nikkei 225);
• Standard & Poors / Australian Securities Exchange 200 (ASX 200);
• EURO STOXX 50 Index (EURO STOXX 50);

3. gold.

The full text of the announcement is available on the KNF website here.

It's time to open the champagne?

The KNF informs that although the decision is of indefinite duration, it will monitor the situation all the time. After 12 months, the effect of the changes introduced will be assessed and possibly adjusted to the needs of the market.

The decision covers all entities offering CFDs in Poland, i.e. investment companies, banks, branches of foreign investment companies and credit institutions and entities operating cross-border on the basis of the principle of freedom to provide services. This theoretically means that leverage 1: 100 will be available not only to customers of Polish brokerage houses, but also should open the way to a higher leverage for customers of foreign brokers that have a KNF notification and support Polish traders.

The full wording of the KNF's decision with justification was published in the Official Journal of the Financial Supervision Authority and will come into force on the day following its publication, i.e. from Friday 2 August 2019.