CySEC introduces restrictions for CFD offering to retail investors

The Cyprus Securities and Exchange Commission (CySEC) has announced new national measures that restrict the distribution, sale, and marketing of contracts for difference (CFD). New CySEC measures are largely aligned with the ESMA (European Securities and Markets Authority) restrictions for offering CFDs to retail clients. ESMA, for its part, published an opinion concluding that measures adopted by the CySEC are justified and proportionate.

Although the initial plan implied the application of various leverage caps to various categories of retail clients, as a result, the CySEC came up with the adoption of the same leverage limits for all retail clients.

There are concerns in relation to the cross-border application of new measures and the variable level of protection. For example, when there are different measures adopted by the NCA (National Competent Authority) of the Member State of authorized company and the NCA of the Member State of the retail client, the legal challenge might arise.

The CySEC’s solution to this legal challenge would be a territorial approach to residents of other EU Member States taking into account that generally, measures adopted by the NCAs across the European Union do not differ substantially. New measures are tailored in a way that allows to replicate and incorporate measures adopted by other NCAs when companies authorized by the CySEC market, distribute or sell CFDs in the territory of such Member State.

Also, new national measures will replace the standard risk warning that reflects the percentage range of accounts that lose money with more persuasive risk warnings stating: “the vast majority of retail investor accounts lose money when trading in CFDs” or “CFD-retail client accounts generally lose money”. The CySEC considers that a new warning standard would be more effective than the warning containing the percentage range as the monitoring of the accuracy of the latter might be challenging.

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