France’s prohibition on marketing to retail clients of over-the-counter (OTC) financial derivatives, such as forex, binary options and contracts for difference (CFDs), also includes sponsorship agreements, according to an informational document published by the country’s financial regulatory body, the Autorite des Marches Financiers (AMF).
“All sponsorship arrangements are forbidden when their purpose or effect is, direct or indirect, advertising in favor of investment services about financial derivatives referred to Article L. 533-12-7 of the Monetary and Financial Code,” the AMF Consumer Code reads.
Violators of the law are to receive an administrative fine of no more than € 100,000. Existing sponsorship deals that were entered on 1 July, 2016 will only be in the scope of the prohibition from 30 June, 2017.
In September last year, the AMF banned the advertising of forex, binary options and contracts for difference (CFDs) with a leverage greater than 5:1. The new rules are included in the Sapin II law and refer to advertising to retail investors. The ban on advertisement of derivatives applies to all online space and media platforms (TV, radio, telephone broadcast). However, marketing information published on advertising posters or by the written media, as well as on the brokerage’s own website is allowed. However, the published informational should have a “content which is accurate, clear and not misleading”. Marketing materials published on the broker’s official social media page or any of its other websites may be prohibited.
The ban excludes hedging transactions as long as they do not meet certain criteria. These contracts aim at covering the risks that arise from fluctuations of foreign exchange rates for instance, thus impacting the value of an asset. It also does not include CFDs that contain a built-in protection mechanism that structurally prevents the client from losing more than they initially invested.
The AMF, an independent public authority, is in charge of the supervision of the financial markets in France. It licenses financial service providers, sets industry rules, and monitors whether entities comply with them. The regulator makes sure French citizens receive adequate information and safeguards their investments in financial products.
The Cypriot regulatory body, CySEC, also just published additional information to clarify the types of bonus incentives that Cyprus Investment Firms (CIFs) are banned from offering to retail clients. The regulator gave specific examples of the types of bonuses banned from being offered.
France is one of many European countries to take steps to limit or ban risky investments instruments. In late 2016, Cyprus’ CySEC and UK’s FCA announced the introduction of a default leverage cap for forex and CFDs and the ban of bonuses as a measure to attract clients. Other authorities also followed and Belgium banned the distribution via online channels of over-the-counter (OTC) binary options, spot forex, and CFDs with leverage. The Netherlands and Germany have also announced they consider the ban on the advertising of such instruments, while Spain is to address the issue some time later in 2017.
Outside the EU, other countries have also taken similar measures. Israel is drafting a legislation that would allow it to shut down binary options broker that solicit customers abroad, as currently its authority is limited to the country’s borders. The country is also a hub for binary options call centers. Otherwise, brokers are not allowed to offer binary option instruments within the country, but they can still target foreign investors. Meanwhile, Quebec’s Autorite des Marches Financiers (AMF) recently proposed the prohibition of the sale of binary options to citizens in the province, becoming the first Canadian province to consider a full ban on this type of instruments.
Earlier this week, the Monetary Authority of Singapore (MAS) issued a warning notice about the risks associated with trading in binary options instruments.