ESMA issues Opinion on CNMV product intervention measures

ESMA issued an Opinion on product intervention measures proposed by the Spanish CNMV concerning investor protection (eventid=22069). The CNMV had notified ESMA about its intention to take measures under Article 42 MiFIR, which allows NCAs to implement product intervention measures.
The proposed measures by CNMV consisted of two main elements:
First, there were further restrictions on the marketing of CFDs, a type of financial derivative product. These restrictions included a prohibition on advertising CFDs to retail clients, as well as restrictions on sponsorship of events or organizations and brand advertising related to CFDs. The CNMV also planned to impose specific rules on remuneration policies and cash deposits by customers.
Secondly, the CNMV proposed to introduce initial margin and margin close-out requirements for „other high-risk products,“ which are financial instruments where the investor may lose more than their initial investment. These requirements aimed to provide additional protection to retail clients who may be at risk of significant losses.
ESMA evaluated the justifications provided by the CNMV for these measures and found that there were significant investor protection concerns surrounding CFDs and other high-risk products. Despite previous measures taken in 2018 to restrict CFD trading, the CNMV reported that many retail investors continued to suffer losses due to the complexity and high risk associated with these products.
The CNMV observed that CFDs and other high-risk products were being aggressively marketed to retail clients, leading to substantial losses for a significant portion of them. These products were often presented in a way that misled clients into believing they were investing directly in the underlying assets, when in reality, they were trading derivatives with high leverage and short-term volatility.
Furthermore, the CNMV noted that the lack of transparency in disclosing costs and charges associated with CFDs made it difficult for retail clients to understand and assess the risks involved. High transaction fees and other financing costs were often deducted from clients‘ initial margin, significantly impacting their chances of making a profit.
Considering these factors, ESMA concluded that the proposed product intervention measures by the CNMV were justified and proportionate. Furthermore, ESMA also encouraged other NCAs to monitor the marketing, sale, and distribution of CFDs and other high-risk products in their jurisdictions to assess whether similar risks for retail investors existed.