In a recent post by RegTech firm Muinmos, the company discussed in detail Spanish CFD ‘Barbie clients’ and fundamental EU rights.
According to an ESMA opinion citing the Spanish financial regulator, the CNMV, certain Spanish retail clients are much like characters in the 2023 Barbie movie.
Using aggressive marketing tactics, some market players have convinced these ‘Barbie-Clients’ to invest large amounts in CFDs (Contracts for Difference) — products deemed inappropriate for them. Now, the CNMV has imposed a new directive that bans mentioning CFDs to such clients unless asked, a drastic move that stifles the freedom of speech and other fundamental EU rights.
Unlike previous EU regulatory measures, CNMV’s action limits fundamental rights like freedom of expression, as outlined in Article 11 of the European Charter of Fundamental Rights. Other potentially affected rights include the freedom to choose an occupation (Art. 15), freedom to conduct a business (Art. 16), and equality before the law (Art. 20). These restrictions seem hastily decided with minimal discussion of their far-reaching consequences on investment firms and other stakeholders.
Another concern is the decision’s impact on regulatory harmony within the EU. While these measures apply only to Spanish retail clients, they hint at a diverging EU regulation landscape. The Spanish regulator’s approach could contradict the EU’s Financial Union policy, which aims to streamline regulations across member states. Notably, this position contrasts with a January 2022 proposal by the AMF and AFM, which advised supervision based on the client’s domicile rather than the financial institution’s.
The CNMV based its decision on outdated and inconclusive data from 2021, pointing to average losses per retail client of €1,649-7,269 and an estimated total loss of around €170m. While these figures are significant, they only represent a tiny fraction (about 0.1%) of the €155bn annual CFDs trade volume. The regulator’s decision should have been backed by more comprehensive and updated data.
The CNMV’s measures suggest a choice between paternalism and materialism, as opposed to the matriarchy-patriarchy theme in the Barbie movie. Regulatory measures should focus on educating and supervising clients, rather than imposing restrictions that undermine fundamental rights. Prohibitions may drive retail clients to seek CFD opportunities in other jurisdictions, possibly outside the EU, further fragmenting the single market.
As things stand, the eventual impact of these restrictions is hard to predict. The CNMV’s CFD ban could either lead to a decline in CFD trading among Spanish retail clients or redirect them to different jurisdictions, possibly outside the EU. The best course of action would involve educating clients rather than imposing restrictive bans.
Read the full post here.
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