MFSA warns about CFDs risks, updates rulebook

The Malta Financial Services Authority (MFSA) has updated its Conduct of Business Rulebook to implement changes essentially restricting the marketing, distribution or sale of Contracts for Differences (CFDs) in or from Malta to retail investors, according to a press release published by MFSA. European Securities and Markets Authority (ESMA) has welcomed the updates.

The MFSA has issued the update following a consultation process which the authority held with the industry earlier this year. 

The MFSA’s update comes as a reaction to the increasing popularity of CFDs for retail clients across the European Union, who have been trading in these “inherently risky and complex products”, according to the press statement.

The permanent restrictions introduced in the rulebook include requirements that ensure that investors cannot lose more money than they have invested. The new update also adds restrictions on incentives offered to trade in CFDs. At the same time, investors must be provided with understandable risk warnings so that they are aware of the high degree of risk involved when investing in such products, under the new updates.

Moreover, the MFSA has introduced standardised warnings on the risk carried by such investments to ensure that customers are made aware of the high degree of risk involved when investing in such products, according to the press release. 

“These rules, in line with the MFSA’s vision, seek to strike a balance between the market’s need to provide fair competition and client choice, while at the same time protecting consumers of financial services, and safeguarding the integrity and stability of the financial system,” said Michelle Mizzi Buontempo, MFSA’s Head of Conduct Supervision. 

The ESMA called the MFSA’s updates “justified and proportionate”, while encouraged that national competent authorities of other EU member state should also take product intervention measures “that are at least as stringent as ESMA’s measures”, according to a formal opinion the ESMA has published.