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The PFSA issues a statement regarding an experienced customer and ESMA's opinions

The PFSA issues a statement regarding an experienced customer and ESMA's opinions

created Paweł MosionekAugust 22 2019

Three weeks after the entry into force of the new KNF guidelines covering the Forex market and CFDs, the Polish regulator publishes the justification of the decision and refers to ESMA's opinion on it.

Experienced customer and ESMA

As a reminder, the ESMA product intervention expired after August 1, after 1. This theoretically paved the way for EU national regulators to set their own rules. Most decided to introduce regulations in an unchanged formula. The KNF decided a little differently, which the European supervision did not quite like.

The key difference was the emergence of a new categorization - experienced customer. This is to be a path enabling relatively easy (compared to the conditions for a professional client) obtaining higher leverage for retailers with more knowledge and experience.

Be sure to read: Experienced customer and 1 lever: 100. We're checking the procedure

According to the PFSA, barriers to obtaining greater leverage have effectively influenced the outflow of experienced traders to unregulated markets or outside the EU. Thus, the regulator points out that the criterion of investor losses should not be the only argument to maintain previously binding restrictions.

ESMA supported all proposed changes except for the introduction of 1: 100 for a new group of investors. How does the KNF comment on this opinion? Below is the full message.

Statement of the Polish Financial Supervision Authority

The PFSA stresses that the supervisory body when introducing product intervention measures was obliged, pursuant to art. 42 section 2 lit. c MiFIR, to take into account the level of knowledge and the likely effect of the measures adopted on investors purchasing CFDs. Therefore, the legitimacy of introducing restrictions in offering CFDs to individual clients should not be assessed solely on the basis of past losses.

Information gathered by the Polish Financial Supervision Authority indicates that after the entry into force of ESMA's intervention, a large proportion of retail clients have transferred their CFD investment activity to countries outside the European Union or intend to do so. The reason for this phenomenon is the definition of financial leverage available in the European Union at too low a level. The above process means that clients who continue their investment activities outside the European Union have less legal protection. This is due to the differences between the law in force in the European Union and outside it.

The purpose of introducing the definition of an experienced retail client - having its registered office or habitual residence only in Poland - is to prevent the transfer of investment activities outside the European Union. Thanks to this, investors with the status of experienced clients will be able to conduct investment activities with legal protection resulting from the provisions in force in the European Union, and at the same time the level of financial leverage will be adjusted to their expectations.

It is important that placing a lower margin level (meaning access to a higher leverage) will only apply to retail clients who will be able to demonstrate the necessary knowledge and investment experience. The purpose of this solution is to identify this group of retail clients who will demonstrate the knowledge required by the PFSA of how to trade in CFDs and the investment risk associated with it. The supervisor also points out that the fact that retail clients, who would be able to obtain the status of experienced client, transfer CFD investment activity to countries outside the European Union due to insufficient financial leverage confirms the conclusion that such clients accept higher investment risk.

The PFSA notes that after the expiry of ESMA's temporary product intervention in the CFD case, individual EU Member States have adopted national measures that differ from each other. There are also countries where no restrictions on CFD investment have yet been adopted.

In the opinion of the PFSA, this state may mean that the CFD provider conducting cross-border activities will determine - based on its assessment of the smaller or greater restrictiveness of domestic supervision measures - which intervention measures should be applied in a given case. This, in turn, could lead to regulatory arbitrage, which should be eliminated under MiFIR. Therefore, the purpose of determining the territorial scope of the KNF's decision was to establish clear rules governing the way CFDs operate in Poland and in other Member States of the European Union. The PFSA recognizes that this will exclude the possibility of CFD providers using the said regulatory arbitrage.

Therefore, taking into account the opinion of ESMA, in the opinion of the supervisory authority, the resolution implemented by the decision on the restriction of the placing on the market, distribution and sale of CFD to retail customers (reference number DAS.456.2.2019) is justified and proportionate and thus it was necessary to take it.

KNF announcement available here.

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About the Author
Paweł Mosionek
An active trader on the Forex market since 2006. Editor of the Forex Nawigator portal and editor-in-chief and co-creator of the website. Speaker at the "Focus on Forex" conference at the Warsaw School of Economics, "NetVision" at the Gdańsk University of Technology and "Financial Intelligence" at the University of Gdańsk. Twice winner of "Junior Trader" - investment game for students organized by DM XTB. Addicted to travel, motorbikes and parachuting.