EU temporary measures on CFDs and binary options

On 22 May 2018, the European Securities and Markets Authority (“ESMA”) adopted two decisions implementing temporary product intervention measures. These decisions restrict the marketing, distribution and sale of contracts for difference (“CFDs”) and binary options to retail clients in the European Union.

These decisions only apply for a period of three months, starting from 1 August 2018 and 2 July 2018 respectively.

The European Insurance and Occupational Pensions Authority (“EIOPA”) followed ESMA’s approach and indicated that it expects insurance undertakings to avoid, as possible direct underlyings of insurance-based investment products, instruments for which ESMA has issued a ban or restriction for the purposes of distribution to retail clients. 

These positions complement the existing Belgian regulator’s measures on the distribution of derivative financial instruments in Belgium (such as CFDs and binary options). The Belgian Financial Services and Markets Authority (“FSMA”) indeed adopted a regulation which bans (i) the distribution to consumers via electronic trading platforms of binary options, derivative contracts whose maturity is less than one hour and derivative contracts with leverage, such as CFDs and rolling spot forex contracts, and (ii) a number of aggressive or inappropriate distribution techniques ('cold calling' via external call centres, inappropriate forms of remuneration, fictitious gifts or bonuses, etc.) used when distributing OTC derivatives to consumers. This permanent ban has applied in Belgium since 18 August 2016. Further useful information can be found on the FSMA’s FAQ on that topic.

Guillaume Platteau, Junior Associate, guillaume.platteau@cms-db.com
Benoît Vandervelde, Counsel, benoit.vandervelde@cms-db.com