The FCA has announced that ESMA’s temporary intervention measures prohibiting binary options and restricting CFDs being sold to retail clients will become part of UK domestic law when the UK leaves the EU as part of the EU (Withdrawal) Act. UK firms are required to comply with ESMA’s measures until they expire in April 2019.
The FCA published two consultation papers in December 2018 to make ESMA’s temporary product intervention measures permanent in the UK. The FCA’s proposed interventions are the same in substance as ESMA’s, although the FCA is also proposing to apply its rules to “closely substitutable products”.
The FCA has said that ‘closely substitutable products’ for CFDs include options that have a similar pay-out structure and risk features as CFDs, which are sold under a variety of commercial labels, including ‘turbo certificates’, ‘knock-outs’ or ‘delta-ones’. The proposed binary option ban would also include certain ‘securitised’ binary options. In both cases, these products were either carved out or not included in ESMA’s temporary intervention measures.
The FCA is continuing to consider the consultation feedback and plans to make its decision on final rules and publish a Policy Statement and any final Handbook rules in March 2019 for binary options, and April 2019 for CFDs and CFD-like options. The FCA expects the finalised rules to apply very shortly after publication to coincide with the dates that ESMA’s restrictions expire.
However, if the FCA is unable to finalise its domestic approach prior to ESMA’s existing interventions ceasing to have effect in the UK, the FCA will consider adopting temporary product intervention measures to replicate those of ESMA. This will ensure no loss of protections for UK consumers in a period between ESMA’s existing interventions ceasing to have effect in the UK, and the finalisation of the UK’s domestic approach.
