Regulatory Reminders on Derivatives
In light of the growing availability of derivatives, particularly those known as perpetual futures or perpetual contracts that offer leveraged investments tied to assets like Bitcoin, regulatory bodies are issuing important reminders to financial firms. These contracts often resemble Contracts for Difference (CFDs), which are already governed by national product intervention regulations enacted by competent authorities.
Compliance and Regulations
When these derivatives classify as CFDs, they fall under stringent rules that encompass:
- Leverage limitations
- Obligatory risk warnings
- Margin close-outs
- Negative balance protections
Additionally, any benefits, whether monetary or otherwise, are expressly prohibited under these regulations.
Market Targeting and Appropriateness Assessments
The statement highlights that due to the intricate nature of these financial instruments, they must target a narrowly defined market segment. Firms are encouraged to develop distribution strategies that align accordingly. In cases where firms provide services without personal advice, it’s crucial to conduct an appropriateness assessment in compliance with existing standards for complex financial products.
Conflict of Interest Management
Furthermore, companies are urged to take proactive measures to recognize, prevent, or manage any conflicts of interest that may arise from offering these derivatives.
Iris Hude
Communications Officer
