In furtherance to our eAlert on the “Distribution of certain derivative financial instruments to retail clients: a prospective ban?”, the Financial Services and Markets Authority’s (“FSMA”) Regulation on the distribution of derivatives contracts (the “Regulation”) was approved by a Royal Decree dated 21 July 2016.
Although the Regulation kept a dual bearing, it differed somewhat from its original draft version.
The Regulation prohibits the marketing of over-the-counter (“OTC”) derivatives via electronic platforms to consumers (e.g. any natural person who is acting for purposes which are outside his trade, business or profession) with the following features:
- binary options;
- contracts whose maturity is less than an hour;
- contracts with use of leverage (which amongst others encompass CFD and rolling spot forex).
Moreover, the FSMA bans the following distribution techniques of OTC derivatives:
- rewarding clients for introducing new clients or recommending any instruments or related services;
- rewarding clients (except where they can withdraw an equivalent amount in cash without further conditions) or offering any benefit that is conditionally linked to certain transactions;
- outsourcing call centres for contact with clients or prospects;
- using inadequate methods of remuneration with marketing staff and software developers (on a pro rata basis linked to investments, gains or losses generated by the client); and
- accepting credit cards for payment.
In terms of legal ground, preparatory work for the Regulation concluded that it does not conflict with EU regulations and that it pertains to consumer protection which enables Member States to take measures if there is an “overriding reason relating to the public interest”.
The Regulation will enter into force on 18 August 2016. It provides a 2 month changeover period in order to unwind current positions.