Through the Circular, CySEC informs the Regulated Entities that following Circular C168 regarding the updated version of ESMA’s Q&A document for the provision of CFDs and other speculative products to Retail clients under MiFID, CySEC would like to provide additional guidance on the types of bonus incentives not permissible to be offered to Retail clients by CIFs. Particularly:
- Via Section 3(i)(a) of Circular C168 – Offering bonuses, CySEC ruled that:
“CIFs must avoid the practice of offering bonuses that are designed to incentivise Retail clients to trade in complex speculative products such as CFDs, binary options and rolling spot forex as it is unlikely that a firm offering such bonuses could demonstrate that it is acting honestly, fairly and professionally and in the best interests of its Retail clients (Section 36(1) of Law 144(I)/2007).
- Section 6, answer 1, point 3 in ESMA’s Q&A document for the provision of CFDs and other speculative products to Retail clients under MiFID, dated October 11, 2016 (hereafter “the Document”), stated that:
“…ESMA is of the opinion that it is unlikely that a firm offering bonuses that are designed to incentivise Retail clients to trade in complex speculative products such as CFDs, binary options and rolling spot forex could demonstrate to its National Competent Authority (hereafter “NCA”) that it is acting honestly, fairly and professionally and in the best interests of its Retail clients, taking into account that the nature of the products means that they are not appropriate for a majority of Retail clients. NCAs should therefore monitor that the practice of offering such bonuses is avoided in relation to these products…”.
- In recent past, CySEC has undertaken a number of thematic reviews, which have provided evidence that a number of bonuses offered to Retail clients, were inconsistent with Section 36 of Law 144(I)/2007 regarding the conduct of business obligations. Whilst not an exhaustive list, examples of such bonuses offered when opening a trading account, or related to subsequent transactions, are included in Appendix 1 of the Circular.
CySEC’s expects that: If a CIF wishes to reward its clients, it can offer to them for example lower spreads instead of a return of an amount, as the example 8 in Appendix 1 (cash rebates) of the Circular. In this case, the CIF is not considered that is violating Section 36(1) of Law 144(I)/2007. The protection of clients’ interests is of utmost importance to CySEC; therefore, CySEC will monitor closely the compliance of CIFs with the provisions of the Circular, Circular C168 and the Document.