ESMA have stated that it is reviewing the potential use of its product intervention powers under Article 40 of MiFIR to address investor protection concerns posed by the marketing, distribution and sale of Contracts for Differences (CFDs) and binary options to Retail Investors, including rolling spot forex.

ESMA is currently assessing the following restrictions:

• Leverage Limits on the opening of a position by a Retail Client, ranging from 30:1 to 5:1 to reflect the historical price behaviour of different classes of underlying assets. In particular:

I. for CFDs in major currency pairs (comprising two of the following, US Dollar, Euro, Japanese Yen, Pound Sterling, Canadian Dollar or Swiss Franc), a limit of 30:1 is being considered

II. for CFDs in non-major currency pairs and major equity indices (FTSE 100, CAC 40, DAX30, Dow Jones Industrial Average, S&P 500, NASDAQ, Nikkei 225, ASX 200), a limit of 20:1 is being considered

III. for CFDs in gold a limit of 20:1 is being considered; (iv) for CFDs in commodities other than gold

IV. for CFDs in commodities other than gold, and for CFDs in minor equity indices, a limit of 10:1 is being considered

V. for individual equities and for any underlying not otherwise listed above, a limit of 5:1 is being considered

• A margin close out rule on a position by position basis to standardise the margin percentage at which providers are required to close out a Retail Client’s open CFD
• Restrictions on incentivisation of trading provided directly or indirectly by a CFD provider
• Negative balance protection on a per account basis
• Standardised Risk Warnings by CFD providers. ESMA’s preferred option is that this would indicate the percentage range of Retail Investor Accounts having losses
• ESMA is also considering whether CFDs in cryptocurrencies should be addressed

On binary options, the potential measure under consideration is a prohibition on the marketing, distribution or sale of binary options to Retail Investors.

Further information:

To read more, please follow this link:

https://www.esma.europa.eu/sites/default/files/library/esma35-43-904_call_for_evidence_-_potential_product_intervention_measures_on_cfds_and_bos_to_retail_clients.pdf

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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.

Source and credit: Compliancy Services

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We would like to extend our appreciation to Finance Monthly for awarding Met Facilities the Compliance Consulting award for 2017. Met Facilities is honoured to receive such a prestigious award, which recognises us as the leading provider of FCA regulatory hosting services. 

Our philosophy on “focusing on what matters” resonates strongly with our clients who have voted us for this award. We do this by ensuring our clients receive a timely and commercial solution tailored for them. Consequently allowing them to focus on their businesses. We would like to thank every single one of them for voting for us! 

Here at Met Facilities we are excited at the prospect of helping you develop your business in this complex regulatory environment. 

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Lifting The Weight Of Regulation

Regulation. It is akin to the gym memberships we all have – big direct debits going out each month but seldom used let alone appreciated. Until the day you decide to use a personal trainer. You then get a better sense of how it all works and the value it brings. Similarly, regulation doesn’t have to be payment going out for something you do not understand nor does it have to be a hard workout. It can be a simple, cost-effective and an easy to grasp operation.

In recent months I have deliberated with many players in the fintech space, at events such as Fintech Connect Live, at drop-ins hosted by Canary Wharf-based accelerator Level 39 and recently the FCA’s Sandbox roundtable. We discussed the growing cost of regulation and ever increasing compliance obligations.

From the discussions, a couple of common themes emerged, with many asking:

Does my innovative business model or service need to be regulated?

If so, how can I do this cost-effectively, painlessly and swiftly?

The first question is usually a yes. A key principal for FCA is treating customers fairly and protecting consumers from harm so inevitably your business will need some form of supervision. Project Innovate, the campaign to encourage innovation in this sector, shows that understanding the level of supervision and applying the relevant regulatory permissions does not need to be tricky or time-consuming.

Regulatory permissions can be divided into relevant activities for your business, such as advising, arranging, and dealing or managing investments.

Bhavesh Kotecha, Managing Partner at Met Facilities, says it is not always about having “an out with the old, in with the new” mindset but is more about understanding the underlying core business activity and aligning it to the current regulations.

A new fintech business – be it a payment solution, lending platform or digital currency innovation – can often be matched with the current regulatory architecture.

“Even if the new product or service is innovative, the regulatory solution does not have to be,” Bhavesh added.

To the second point – can regulation be done cost-effectively, painlessly and swiftly – the gym is a much easier place to navigate now my personal trainer has shown me how to get value from it.

Similarly regulatory platforms can ease the burden and help you become FCA compliant in a matter of weeks, allowing you get on with the job in hand.

The traditional lengthy, resource heavy and often costly direct FCA authorisation route is usually not an option for start-ups or small firms so the regulators and service providers have responded. A viable and popular alternative that is growing in demand is to use a regulatory hosting platform, also known as a regulatory umbrella, such as Met Facilities.

Becoming an Appointed Representative of a principal firm (the platform provider) provides your business with all the relevant regulatory permissions to conduct your business activity while the principal bears the compliance risk, regulatory filing and reporting and supervisory burdens.

Outsourcing this is a quick, easy and cost effective solution. Fixed costs become variable and permissions are set up in a matter of weeks. Best of all, you don’t need to become a regulatory expert or devote any manpower to navigate the complex regulatory landscape. Firms such as Met Facilities can do the full registration, training and can deal with the ever increasing compliance obligations – which includes regulatory filings, maintaining a risk management infrastructure and dealing with tax and payroll issues – allowing you to focus on building your business.

Former financial services reporter at the FT, Jonny Paul, says: “There has been a proliferation of regulatory platform providers in this space but only few, like Met Facilities, offer the regulatory permissions while providing a comprehensive and robust infrastructure for growth and long-term partnership.”

Regulatory umbrellas work closely with the FCA and are at the forefront of regulation and risk monitoring.

“Understanding how the innovative fintech space interfaces with traditional models is crucial to providing compliant and commercially suitable solutions,” Bhavesh said. “And it’s not just about being compliant, there is a certain prestige and halo-effect. Investors and prospective clients will realise you are running a tight ship with robust procedures, processes and controls in place.”

So there is no need to throw the old bathwater out, the current regulatory architecture is already well structured and applicable. However it is complex and continually evolving and experienced regulatory hosting platform providers, such as Met Facilities, can provide that service and help your business become compliant and up to date with all the regulatory changes, allowing you to have the peace of mind enabling you to make regular visits to the gym and really get value for your money.

Contributors included Johnny Paul, an independent financial services journalist. Follow him @StrummerJonny.

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Gillian Roche-Saunders and Victoria Aderounmu provided a great introduction to the world of Fintech by describing the various sectors, their benefits and risks, as well as a glimpse into the future. It was great to meet other people in this dynamic space and, as ever, Bovill’s events keep a finger on the pulse of the industry.

The presentation slides can be downloaded here. Keep an eye out for more of Bovill’s upcoming events here.

Image courtesy of Richard Jones.

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The Future of Currency brought together 25 players from the banking, digital and alternative currency worlds to explore the key changes we might see to currency over the next decade with technology taking its toll on banking and payment which could revolutionise the way we bank and transact.

Interestingly, trust was deemed as one of hurdles in the virtual currency space. Ironically, Satoshi Nakamoto’s proposal for a peer-to-peer electronic cash system had cryptographic proof, allowing online payments to be sent directly from one to another without going through a financial institution, at its core instead of trust. Although the need for a trusted third party is removed from the transaction by the blockchain model, it is still the technical trust of these new currency systems that needs to be overcome with a major barrier-to-adoption being the trust imbued in central banks.

Over the coming years we are likely to see the subject matter open up, with major disruption guaranteed to spark some interesting deliberations as virtual currencies continue to disrupt, and start-up challenging the banks, while trust is gained in the systems, regulations and currencies themselves.

Technology advances in recent years has increased the virtual status of currency and with continual innovations in digital networks, open platforms, mobile technologies and payment data analytics applications, the road ahead looks challenging.

For more on the subject check out the discussion at Future Agenda.

Image courtesy of Zach Copley.

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Placed in prime position at the heart of the exhibitors, it was a fantastic opportunity for Met Facilities to meet thousands of Fintech professionals and start-ups at the forefront of innovation. It is only at events like these that you get your finger on the pulse of the FinTech space.

Charlotte Henry has written a great piece about the five things learnt at the event; payments especially remained a key area of Fintech development. However, from a regulatory perspective, we noticed two trends where a number of start-ups were:

1. Unaware of regulatory requirements
2. Unaware of potential regulatory solutions

With regard to the first trend, we are always keen to reiterate the importance and value of structuring your business correctly, clarifying your regulatory position and putting in the right processes early on. It not only confirms your business model will work within the regulatory landscape but it also provides investors and clients with confidence in how you are running your business.

To the second trend, when it comes to seeking regulatory authorisation there are a number of solutions available to you rather than the lengthy and expensive direct approach with the FCA. For example, Met Facilities provide a regulatory umbrella solution where, in a matter of weeks rather than months and through a combination of appointed representatives and controlled functions, your firm can utilise our regulatory permissions. This is a quick and cost-effective solution to manage your regulatory requirements and allow you to focus on running your business.

If you have any questions about your regulatory requirements or our regulatory umbrella solution, don’t hesitate to get in touch.

At FinTech Connect, it was great to be able to improve awareness and provide some clarity on the regulatory landscape. We very much look forward to attending such a successful event again next year.

Big thanks to James Brown and the Fintech Connect Live team!

Update 04/01/2016: For a video overview of the event, visit the Fintech Finance website.

Image courtesy of Splento.

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