The CNMV will intensify control over complex products
The EU bans binary options for individuals and restricts CFDs The circular of the CNMV that establishes new warnings about especially complex financial instruments will come into effect within three months, after its publication yesterday in the BOE. The regulation establishes that investors must recognize the difficulty of understanding certain products when hiring them, writing in their own handwriting: Product difficult to understand. The CNMV considers that, in general, it is not convenient for retail investors “.
They will be affected by this circular:
1. Convertible debt (CoCos); perpetual debt (preferred) and certain cases of subordinated debt (AT1 and AT2), which according to the solvency regulations of credit institutions are computable as equity.
2. Bonuses; financial contracts or collective investment instruments with underlying assets that are not traded in markets in which prices are disseminated daily, or are linked to events related to credit risk (credit-link bonds / notes). Sources of the CNMV recognize that the commercialization of this type of products is minimal in Spain.
3. OTC Derivatives (non-regulated markets) without hedging purpose, with underlying assets that are not usually invested by retail investors or that are highly speculative.
4. CFDs (contracts for differences) that can be traded between individuals, once the EU restrictions have been applied (see attached information).
The circular has flexibility mechanisms that will allow the CNMV to introduce new instruments if necessary, so the inclusion of products related to cryptocurrencies is not ruled out.
The regulation also obliges credit institutions and investment services companies to warn of the risk of losses entailed by the instruments that may be potentially affected by an internal recapitalization exercise (bail-in), such as shares, and the existence of significant differences between the effective amount at which the purchase or sale is made with the customer and the estimated value of the product.
