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Screenshot of a breaking news alert e-mail from Q2 2017
There seems to be some confusion out there regarding a circular issued today by Spanish financial regulator CNMV, entitled (translated from the original Spanish): The CNMV approves a Circular that establishes new warnings on financial instruments considered especially complex.
The issue of warnings required by the CNMV aren’t new – they were introduced for Spanish traders and FX brokers back in March 2017, as we reported at the time. Spain’s CNMV has actually been among the more lenient of the major European financial regulators when it comes to leveraged trading, certainly as compared to France and Belgium, and even Cyprus and the UK, whose initiative is on hold while pan-European regulator ESMA considers what it wants implemented across the continent.
Spain’s main requirement revolves around client disclosure and consent. As noted above, In March 2017 the CNMV required Forex, CFD and Binary Options brokers to issue fairly detailed warnings to clients, while getting some sort of written or oral consent from the client indicating that they knew what they were getting into.
The current CNMV circular doesn’t really mandate anything new – it just details specific language which the regulator wants in both the warnings issued to clients, as well in the handwritten note that the clients need to sign and hand to the brokers (no more “text” or oral consent is allowed).
The handwritten note signed by clients should read:
Product difficult to understand. The CNMV considers that, in general, it is not appropriate for retail investors.
This handwritten note will be accompanied by a warning for the client:
You are about to buy a product that is not easy and which can be difficult to understand: (product must be identified). The CNMV considers, in general, it is not adequate due to its complexity for acquisition by retail customers. Notwithstanding that [name of the entity] has assessed their knowledge and experience and considers that it is convenient for you.
A second paragraph will be added in cases where the retail client can assume financial commitments for an amount greater than the acquisition cost of the instrument:
This is a product with leverage. Client must be aware that the losses may be greater than amount initially disbursed for its acquisition.
The full circular issued by the CNMV can be seen here (pdf, in spanish).