France’s financial regulator, AMF (Autorité des Marchés Financiers) is considering to turn temporary ESMA restrictions into permanent law. The restrictions have been acting for little less than a year now. They have been targeting countries within the boundaries of the European Union, but other countries have been affected as well.
The ESMA introduced its first batch of restrictions back in August 2018. The restrictions were to be a test subject lasting no more than 6 months, but the regulator decided to extend the deadline by a further 3 months. The current restrictions are to be stopped on July 1st, 2019. Many European countries found the restrictions to be quite helpful in regulating the local financial markets and are even considering to make them permanent.
The AMF isn’t the first
The AMF is just a single example. The UK’s FCA and Germany’s BaFin have already made relative measures to ensure permanent enforcement of ESMA regulations even after the deadline.
The restrictions are generally targeting CFD and Binary Options brokers. Binary options are completely restricted, there is no company within the borders of the EU that can offer these assets legally. While CFD brokerages have strict prohibitions on limiting their marketing campaigns for their products. In fact, the ESMA has clearly stated that any attempt to reel in customers for CFD trading will be considered unlawful and will warrant a significant fine from the regulator.
A complete disaster for locals
These restrictions have been nothing but bad news for brokers, especially for those located in the EU, which are now in the process of restructuring their whole business models to better accommodate the restrictions. If you check the Forex trading guide here in detail, you’ll notice that the changes have been so significant that new strategies and methods had to be developed, just for EU traders alone. The brokers get increased prices in marketing campaigns and in general operations, while offshore companies prey on the now vulnerable EU market. In fact, according to reports, a majority of European traders are receiving cold calls from offshore companies offering Binary Options and CFD trading without restrictions.
But questions can be asked about, how can these smaller, untrustworthy offshore entities even dream of competing with sophisticated EU-based brokerages? The answer is quite simple. Thanks to their distance from the ESMA jurisdiction, these companies have the ability to a) offer Binary Options which are still popular among a few traders and b) Offer leverage higher than 1:30. According to ESMA regulations, the maximum amount of leverage brokers can offer even on currency pairs has been reduced to 1:30. This was a major hit for most traders as their prospects of making profits diminished.
Can AMF even do that?
The AMF has full authority over France’s financial markets. Therefore implementing a permanent version of ESMA restrictions is indeed within their legal powers. In fact, the ESMA has stated that all financial watchdogs have the right to implement these restrictions locally and that the regulator would back it. That is what we saw with the UK and Germany.