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KNF change project regarding Forex and CFD criticized by ESMA

KNF change project regarding Forex and CFD criticized by ESMA

created Paweł MosionekJuly 31 2019

The European Securities and Markets Authority today published (ie on Wednesday, 31 July 2019) a document which evaluates the KNF's idea regarding the regulation of the Forex market and CFD instruments in Poland (you can find it here). However, he met with clear criticism.

Condemned to the 1 leverage: 30?

A draft regulation consisting of the hands of Polish financial supervision to ESMA last month assumed the introduction of a new category - "Experienced client". This was to serve as a gateway for receiving more leverage for retail customers (even for 1: 100), who can demonstrate greater experience and awareness of investment risk.

To get the status of an experienced client, it would be enough to meet one of the following conditions in the last 24 months:

  • Open at least 10 CFD positions with a nominal value of EUR 50 thousand (or the equivalent in PLN) within one quarter in the last four quarters;
  • Open at least 50 CFD positions with a nominal value of EUR 10 thousand (or the equivalent in PLN) within one quarter in the last four quarters;
  • Open at least 40 CFD positions with a nominal value of 2 million (or equivalent in PLN) in the last 24 months;

In addition, it could be assumed that the knowledge of an experienced client is sufficient in the event that one of the following conditions is confirmed:

  • Presentation of CFA, FRM, PRM, ACI, DI, MPW licenses or completion of a special course;
  • Transition of at least 50 hours of CFD training and derivatives, which have been confirmed by certificates or by a test carried out by the organizer;
  • At least one year of professional experience in a position directly related to the CFD market;

The return of KNF to FX / CFD traders and the desire to offer them something more was justified by the fact that Polish investors are "Forced" to escape outside European regulations in order to obtain a higher leverage. This state of affairs was also confirmed by statistics and surveys used by the regulator. Certainly, the deteriorating financial condition of Polish brokerage houses operating on the currency market was not without significance.

This, however, did not convince ESMA, which negatively referred to the PFSA's proposal. In the ESMA statement, we read:

'Excessive leverage was one of the main causes of consumer harm which led ESMA to take provisional product interventions'.

It was also underlined that there is now the possibility of obtaining more leverage under the clearly defined conditions described in the 2014 / 65 / EU directive. It's about the option of changing the categorization from the retailer to a professional. The problem, however, is that in the opinion of the vast majority of representatives of brokers, traders and the regulator itself, in Polish conditions these conditions are relatively high and difficult to meet even for people trading for many years.

The intervention of ESMA expires tomorrow

Theoretically, 1 August will cease to apply to ESMA product intervention in the European Union. Thus, national regulations will start to operate. In many EU countries, regulations identical to the ESMA guidelines have been introduced during the last 60 days. But not in Poland. Does this mean that the KNF can put on its own anyway? In theory, yes, but will he decide? This is not known.

We are waiting impatiently for the decision a Cypriot regulator that is considering (ł?) leveraging 1: 50.

A list of countries that have introduced regulations identical to ESMA we've included in a separate article 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.

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