CFD ban to Belgian Retail Clients

15th August 2016

                                                               Regulatory Alert

                                          Ban on distribution of CFDs to Belgian Retail Clients

                                                               15th August 2016

This alert will be of primary interest to firms with Belgian retail clients.

A ban is to commence on Wednesday 18th August 2016, for the distribution of certain financial derivatives including Contract for Differences (CFDs) with leverage and binary options among Belgian retail clients.

Timeline:

  • The ban will apply from the 18th August 2016
  • For the following two months after the 18th August, the distribution of the relevant instruments will continue to be authorised for the purpose of settling existing transactions.

Regulation:

Although these products may generate high yields at a time of low interest rates, these specific types of derivatives are considered to be extremely risky often involving aggressive marketing and transactions over a very short period.

The Financial Services and Market Act regulation applies to unlisted or over-the-counter (OTC) derivatives to consumers via electronic trading platforms. These are:

1.Derivative contracts with leverage, such as CFDs and rolling spot forex contracts.

  • CFD: This is a contract between a buyer and seller in which the parties agree to exchange the difference between the current price of an underlying asset and the price of that asset at the end of the contract.
  • Rolling spot forex contract: This is a type of contract for a foreign exchange transaction which is renewed indefinitely until one of the parties closes its position. At this point the transaction is settled in cash on the basis of the changes in the underlying currency since the beginning of the contract.

2. Binary options. This is a contract in which one party undertakes to pay the other party a specified amount if the value of a given asset changes in a specified direction with a predetermined period.

3. Derivative contracts whose maturity is less than one hour.

The regulation also includes certain distribution practices which are considered to be inappropriate or aggressive when distributing OTC derivatives to consumers. This includes (but is not limited to):

1. Cold calling via external call centres

2. Inappropriate forms of remuneration

3. Fictitious gifts or bonuses

Please contact a member of the CPA compliance team should you have any questions or queries related to this.

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