The European Securities and Markets Authority (ESMA) has updated its Questions and Answers relating to the provision of Financial Contracts for Difference (CFDs) and other speculative products to retail investors under MiFID.
This document builds on the first and second batches of Q&As and includes nine new questions and answers in sections 3 to 5. The topics addressed in these new sections are the following:
- Information provided to clients and potential clients about how CFDs and other speculative products work and the risks involved, including marketing communications;
- Assessment of a retail client client or potential retail client’s ability to understand the risks involved in order to determine whether trading in CFDs or other speculative products is appropriate for them; and
- Factors for supervisors to consider when firms offering CFDs or other speculative products to retail clients enter into certain commercial arrangements with other authorised firms.
Due to its complexity, CFDs and other speculative products mean that it may be difficult for the majority of retail investors to understand the risks involved. This notwithstanding the fact that these financial products are widely advertised to the retail mass market by a number of firms, often via online platforms.
The updated Q&As can be accessed here.