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New CNMV CFD and Forex Brokers Requirements in 2017
20/03/2017
New CNMV CFD and Forex Brokers Requirements in 2017

The Spanish Financial regulatory body Comisión Nacional del Mercado de Valores (CNMV) issues a communication to the CFD, Forex, and Binary Options providers. What are the new CNMV CFD and Forex brokers requirements in 2017?

20 March, AtoZForex  In our last Spanish Forex Regulation article we covered Spanish financial regulator CNMV is plans on reviewing CFD regulation this year. We were looking for the next move by the CNMV following the issuance of its Activity Plan for 2017. Faster than expected Spanish Forex regulator issued a communication regarding the new CNMV CFD and Forex brokers requirements.

New CNMV CFD and Forex Brokers Requirements

Spain’s CNMV has set certain parameters for the industry brokers providing services to the retail customers. According to the communication, the regulator’s requirement is that every brokerage dealing in CFDs, Forex, and binary options will have to mention additional risk warnings to the investors if the leverage is higher than 1:10. We already discussed lastly that considering the risky and complex nature of the highly speculative financial instruments, the regulator wants to put more emphasis on increasing financial education and support to the retail clients.

As per the regulator’s requirement, a warning sign should pop up educating the investor about the risk associated with the position or order that the investor is placing. As per the tentative translation from the CNMV document, the warning sign should look something like this:

“The financial product you are about to acquire (product must be identified) is a product with leverage. You must be aware that losses may be greater than the amount disbursed initially for acquisition.”

In addition, the financial regulator wants the CFD, Forex, and binary options advertisement should contain a similar warning sign. This move is taken for educating the investors regarding the risk associated with the said financial products. The warning sign should be somewhat like this as per the approximate translation:

“The financial instrument is difficult to understand. Considering its complex nature and the risk associated, the CNMV considers that it is inappropriate for retail clients.”

Below you can read the document from the Spanish financial regulator regarding the new CNMV CFD and Forex brokers requirements.

New Spanish CFD and Forex Brokers Requirements flaws

The issue regarding the new Spanish CFD and Forex Brokers Requirements ruling is that it does not address the root of the issue. Spanish CNMV Forex Broker update is only targeting the entities directly regulated by the CNMV.  For a plain eye it may seem as “no problem”, however, there is a but!

Have you seen? List of Forex Fines and Warnings

Majority of the Forex Scams often takes place via passported brokers or the unlicensed brokers. As a part of the MiFID law, any EU based regulated entity can passport its operations to any other EU country. So, by making things too complicated, CNMV is making the locally regulated entities job more complicated and leaving the back door open for the SCAM Brokers, like the Turkish Forex Regulatory update earlier.

Deadline to comply with CNMV’s new requirements

Furthermore, as per the existing rule, every investor willing to trade such instruments should undergo an evaluation for trading suitability by their brokerage. In case, the investor that does not clear the evaluation will have to manually give in writing:

“The product that I am dealing in is complex and the CNMV considers it to be not suitable for me.”

The implementation of the above-mentioned requirements may be difficult in some cases. Moreover, companies using any third party platforms might have to provide supplementary resources in order to comply with the process. Finally, the deadline set by the Spaniard watchdog for the brokerages to comply with the new regulation is only a month.

Think we missed something? Let us know in the comments section below.

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