ESMA, the European Securities and Markets Authority, has praised the impact of tighter binary option and CFD regulations. This comes on the heels of the Irish central bank’s decision to ban binary options completely and institute much tighter restrictions on both the marketing and sale of CFDs (Contracts for Difference).
The Pan-European regulator has issued five positive opinions on the general regulatory landscape that has followed its temporary ban on Binary Options and its much more rigid and robust regulation of CFDs. The opinions weigh in on the fact that many of the EU regulators have indeed implemented much stricter measures that are permanent and not temporary.
Local regulators following ESMA’s lead
In the past few months, regulators from around the European Union have been implementing suggestions from ESMA, taking their cue from the temporary measures that the European regulator instituted to curb the rampant sale and marketing of Binary Options. The Czech, Slovak and Estonian authorities have all instituted measures that mirror ESMA’s own which came into effect last August.
What ESMA did was ban Binary Options outright in any European Union jurisdiction. They banned both the sale and marketing of Binary Options leaving very little leeway or loopholes for unscrupulous brokers to take advantage of.
The leverage caps introduced on CFDs were thought to be harsh by many in the industry, but it seems that the authorities from around the European Union are agreeing wholeheartedly with ESMA that 30:1 for major currency pairs is more than enough without exposing consumers to too much risk. The leverage cap of 20:1 on exotic pairs and 2:1 on cryptocurrencies seems light compared to the caps for the major trade pairs. Welcome bonuses for clients have also been banned, along with mandatory risk warnings on any marketing that retail brokers do within the European Union.
ESMA overjoyed with reception
The reception of the temporary measures and the speed with which local regulators have implemented their own has been extremely pleasing for the European financial watchdog. This week, ESMA issued five legal opinions that practically fawned over the Eastern European nations’ introduction of regulations covering the Cyprus-destroying rules that have been put in place.
ESMA stated that the rules put in place were both justified and proportionate, adding that it still expects all national regulators to follow suit and implement rules that are just as strict. They do also mention that stricter rules would be welcome, but using the temporary measures as a guide is the minimum that is expected of all member states’ regulatory authorities.
These intervention measures have been deemed a top priority so that the situation that befell users in Cyrpus can never happen again on the territory of the major economic and political bloc. Many national authorities have been scrambling to implement the measures while avoiding scaring companies away from their markets.
The Irish regulations, which took a much tougher stance than ESMA, have rung the bell of regulation throughout Europe and now it is only left to see how quickly others follow.