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European Watchdog Plan to Toughen Risky Retail Trading

Market authorities in Europe are looking to borrow from the UK plans to tighten standards in the online retail trading market.

European Watchdog Plan to Toughen Risky Retail Trading

European watchdogs plan on getting online trading companies to reduce losses for customers in what has now become a clampdown across the continent.

In a statement, the European Securities and Markets Authority (ESMA) said it planned to use its new powers to toughen up on the standards that apply to retail trading.

ESMA is looking to limit the amount of money traders can borrow to leverage bets and to also put limits on the marketing of the products. This move will slow down UK markets regulators’ efforts by a few months to allow its European counterparts to catch up.

This clampdown is a way to present a united front in terms of regulation for the boom in online platforms that are only minimally regulated and offer cheap access to retail investors in Europe.

Numerous trading platforms offered their services from other countries using the passport arrangement under the European rules.

Among the products ESMA is targeting are contracts for difference and foreign exchange trading.

ESMA is also looking to take a harder stance on binary options where traders bet on whether the price of a financial asset will go higher or lower than the fixed price of the asset in future.

For the last year, national regulators have had their eyes on the industry. Last December, a clampdown in the UK was the biggest shakeup given that London is home to CFD trading in Europe. During this time, shares in some of the industry’s biggest companies such as IG Group and CMC Markets lost up to a third of their value.

With the support of ESMA, Belgium, Cyprus and France were also able to tighten their rules.

In statement earlier this week, ESMA admitted that its tools may not be enough to ensure that risks to consumers are minimized or adequately controlled.

ESMA further said it would be discussing the measures the UK is looking to undertake for example limiting the amount of leverage a customer can have on their bet. But ESMA, which is based in Paris, is set to take greater measures than the UK’s Financial Conduct Authority with regard to guaranteeing limits to losses that customers may incur.

The Financial Conduct Authority said it would wait for ESMA’s report following the discussion but said its final domestic rules may come in the first half of next year in case there is a significant delay in ESMA measures.

The introduction of Mifid II will enhance ESMA’s power to take continent-wide action by January 3 next year. The Mifid is a piece of legislation intended to protect customers and to bring in more transparency to online trading.

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