Malta: Consultation Document On The Proposed Policy As Applicable To Online Business Models Distributing Or Intending To Distribute Contracts For Difference (CFDs) And/Or Rolling Spot Forex Contracts Under The MiFID Regime
Over the last two years, the Malta Financial Services Authority
('MFSA') has actively undertaken policy work on investment
services licence holders carrying out online forex trading
activities for the purpose of introducing additional regulatory
requirements at the application stage. In effect, on 30th July
2015, the MFSA issued a public notice, wherein it set out the
updated criteria regarding the licencing of entities that would
wish to provide online forex trading to clients. The referred
Notice was issued following various factors that the MFSA had come
across in handling applications in this sector as well as various
risk warnings issued at EU level alerting retail investors to the
main risks involved in forex trading.
In the last few years, the MFSA has observed that online
business models offering MiFID investment services are also
distributing Contracts for Difference (hereinafter referred to as
"CFDs") on an over-the-counter (OTC) basis. Therefore,
for the purposes of this policy, it is hereby being proposed that
MiFID online business models offering CFDs are subject to the
requirements of the public notice (which is already in force) as
well as the new and/or revised requirements which are being
consulted upon in this paper.
CFDs and rolling spot forex are collectively referred throughout
this document as "complex speculative products". Although
binary options are deemed by MFSA to be speculative in nature, it
should be noted that these products will be excluded from this
consultation and would therefore be subject to a separate
consultation process in the near future.
The operations of online business models offering MiFID
investment services in relation to complex speculative products
pose a high risk for retail customers who may not be fully
conversant with the risks associated with such speculative trading.
Furthermore, these types of activities give rise to investor
protection concerns mainly due to the marketing strategies of such
firms. In addition, retail investors do not understand the high
risk, complexity and speculative nature of such products which are
being provided by the above-mentioned firms.
A particular concern is the fact that these complex speculative
products are being advertised via online platforms and are being
sold without investment advice. This has therefore resulted in a
significant detriment and unexpected losses to a number of retail
In this context, a warning has been issued by ESMA and by the
MFSA reminding investors and potential investors to be very
attentive and vigilant when seeking to invest in these speculative
products and to ensure that the provider is duly authorised to
offer such services in relation to these products.
Further to these concerns, the MFSA is proposing further
regulatory requirements for investment services licence holders
distributing or intending to distribute complex speculative
products. The MFSA is seeking feedback on the proposals set out in
this consultation. Responses should reach the MFSA by 18 November
2016. New applications submitted after this policy comes into
effect will have to adhere with the requirements of this revised
policy. Feedback may be sent to email@example.com
or alternatively by conventional post and addressed to:
Communications Unit, Malta Financial Services Authority,
Notabile Road, Attard.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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