UK Regulator Justifies Ignoring EU Opinion on CfD Rules

The U.K. Financial Conduct Authority has published a statement setting out its reasons for failing to act in accordance with the European Securities and Markets Authority's Opinion on the FCA's measures restricting the sale of Contracts for Difference and CfD-like options to retail customers. Where a national regulator takes product intervention measures under the Markets in Financial Instruments Regulation, ESMA must adopt an opinion on whether those measures are justified and proportionate. If ESMA's opinion states that the measures are not justified and proportionate and a national regulator declines to take action on the basis of ESMA's opinion, the national regulator must immediately publish a statement on its website explaining why it has adopted that course of action.

The FCA published its national product intervention measures on July 1, 2019. On July 2, 2019, ESMA published an opinion stating that the FCA's measures were acceptable in all respects other than: (i) the FCA's decision not to apply sales and distribution restrictions to CfD-like option providers authorized in EEA Member States other than U.K. branches or tied agents; and (ii) the FCA's leverage limits for CfDs referencing certain government bonds, which were set at 30:1 as opposed to ESMA's 5:1. In accordance with its obligations under MiFIR, the FCA has published a statement on its website explaining that:
 

• It did not consider it proportionate, practical or effective to apply FCA rules to overseas firms that were not supervised by the FCA and were subject to different rules in their own jurisdiction; it therefore determined that where a U.K.-based client contacted an overseas firm the relevant firm would be permitted to sell CfD-like options that would otherwise be restricted for sale to U.K. retail customers; and
• It considered the 5:1 leverage limits imposed by ESMA for CfDs and CfD-like options referencing certain government bonds to be disproportionate based on feedback from firms; it therefore adopted the 30:1 leverage limit on the basis of the methodology used by ESMA in setting leverage limits and ensured the limit was consistent with leverage limits for other asset classes.

View ESMA's Opinion on the FCA's product intervention measures.

View the FCA's statement.

View details of the FCA's CfD rules.
 
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