# Official Journal L 136/2018

| | ISSN 1977-0677 |
| --- | --- |
| Official Journal
  of the European Union | L 136 |
| | |
| English edition | Legislation | Volume 611 June 2018 |

ISSN 1977-0677

Official Journal

of the European Union

L 136

English edition

Legislation

Volume 611 June 2018

---

| Contents | | II   Non-legislative acts | page |
| --- | --- | --- | --- |
| | | REGULATIONS |
| | * | Commission Implementing Regulation (EU) 2018/791 of 31 May 2018 amending Regulation (EC) No 690/2008 recognising protected zones exposed to particular plant health risks in the Community | 1 |
| | | DECISIONS |
| | * | Council Decision (EU) 2018/792 of 28 May 2018 appointing a member, proposed by the Kingdom of Sweden, of the Committee of the Regions | 9 |
| | * | Commission Implementing Decision (EU) 2018/793 of 28 May 2018 on the clearance of the accounts of the paying agencies of Member States concerning expenditure financed by the European Agricultural Fund for Rural Development (EAFRD) for financial year 2017
  (notified under document C(2018) 3174) | 10 |
| | * | Commission Implementing Decision (EU) 2018/794 of 28 May 2018 on the clearance of the accounts of the paying agencies of Member States concerning expenditure financed by the European Agricultural Guarantee Fund (EAGF) for financial year 2017
  (notified under document C(2018) 3194) | 21 |
| | * | European Securities and Markets Authority Decision (EU) 2018/795 of 22 May 2018 to temporarily prohibit the marketing, distribution or sale of binary options to retail clients in the Union in accordance with Article 40 of Regulation (EU) No 600/2014 of the European Parliament and of the Council | 31 |
| | * | European Securities and Markets Authority Decision (EU) 2018/796 of 22 May 2018 to temporarily restrict contracts for differences in the Union in accordance with Article 40 of Regulation (EU) No 600/2014 of the European Parliament and of the Council | 50 |
| | | GUIDELINES |
| | * | Guideline (EU) 2018/797 of the European Central Bank of 3 May 2018 on the Eurosystem's provision of reserve management services in euro to central banks and countries located outside the euro area and to international organisations (ECB/2018/14) | 81 |

Contents

II   Non-legislative acts

page

REGULATIONS

*

Commission Implementing Regulation (EU) 2018/791 of 31 May 2018 amending Regulation (EC) No 690/2008 recognising protected zones exposed to particular plant health risks in the Community

1

DECISIONS

*

Council Decision (EU) 2018/792 of 28 May 2018 appointing a member, proposed by the Kingdom of Sweden, of the Committee of the Regions

9

*

Commission Implementing Decision (EU) 2018/793 of 28 May 2018 on the clearance of the accounts of the paying agencies of Member States concerning expenditure financed by the European Agricultural Fund for Rural Development (EAFRD) for financial year 2017
  (notified under document C(2018) 3174)

(notified under document C(2018) 3174)

10

*

Commission Implementing Decision (EU) 2018/794 of 28 May 2018 on the clearance of the accounts of the paying agencies of Member States concerning expenditure financed by the European Agricultural Guarantee Fund (EAGF) for financial year 2017
  (notified under document C(2018) 3194)

(notified under document C(2018) 3194)

21

*

European Securities and Markets Authority Decision (EU) 2018/795 of 22 May 2018 to temporarily prohibit the marketing, distribution or sale of binary options to retail clients in the Union in accordance with Article 40 of Regulation (EU) No 600/2014 of the European Parliament and of the Council

31

*

European Securities and Markets Authority Decision (EU) 2018/796 of 22 May 2018 to temporarily restrict contracts for differences in the Union in accordance with Article 40 of Regulation (EU) No 600/2014 of the European Parliament and of the Council

50

GUIDELINES

*

Guideline (EU) 2018/797 of the European Central Bank of 3 May 2018 on the Eurosystem's provision of reserve management services in euro to central banks and countries located outside the euro area and to international organisations (ECB/2018/14)

81

| EN | Acts whose titles are printed in light type are those relating to day-to-day management of agricultural matters, and are generally valid for a limited period.
  The titles of all other Acts are printed in bold type and preceded by an asterisk. |
| --- | --- |

EN

Acts whose titles are printed in light type are those relating to day-to-day management of agricultural matters, and are generally valid for a limited period.

The titles of all other Acts are printed in bold type and preceded by an asterisk.

---

II Non-legislative acts

REGULATIONS

| 1.6.2018 | EN | Official Journal of the European Union | L 136/1 |
| --- | --- | --- | --- |

1.6.2018

EN

Official Journal of the European Union

L 136/1

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COMMISSION IMPLEMENTING REGULATION (EU) 2018/791

of 31 May 2018

amending Regulation (EC) No 690/2008 recognising protected zones exposed to particular plant health risks in the Community

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Council Directive 2000/29/EC of 8 May 2000 on protective measures against the introduction into the Community of organisms harmful to plants or plant products and against their spread within the Community (1), and in particular Article 2(1)(h) thereof,

Having regard to the requests submitted by Finland, Greece, Ireland, Italy, Lithuania, Malta, Portugal, Slovakia, Slovenia, Sweden and the United Kingdom,

Whereas:

| (1) | By Commission Regulation (EC) No 690/2008 (2) certain Member States and certain areas in Member States were recognised as protected zones in respect of certain harmful organisms. In some cases recognition was granted for a limited period of time to allow the Member State concerned to provide the full information necessary to show that the harmful organisms in question did not occur in the Member State or area concerned, or to complete the efforts to eradicate the organism in question. Since then, there have been significant developments in the plant health status of certain protected zones in some Member States. |
| --- | --- |

(1)

By Commission Regulation (EC) No 690/2008 (2) certain Member States and certain areas in Member States were recognised as protected zones in respect of certain harmful organisms. In some cases recognition was granted for a limited period of time to allow the Member State concerned to provide the full information necessary to show that the harmful organisms in question did not occur in the Member State or area concerned, or to complete the efforts to eradicate the organism in question. Since then, there have been significant developments in the plant health status of certain protected zones in some Member States.

| (2) | The territory of Finland was recognised as a permanent protected zone with respect to Bemisia tabaci Genn. (European populations). Finland requested the revocation of the status of its protected zone due to an insufficient degree of continued economic and plant health benefit. Finland should therefore no longer be recognised as a protected zone in respect of Bemisia tabaci Genn (European populations). |
| --- | --- |

(2)

The territory of Finland was recognised as a permanent protected zone with respect to Bemisia tabaci Genn. (European populations). Finland requested the revocation of the status of its protected zone due to an insufficient degree of continued economic and plant health benefit. Finland should therefore no longer be recognised as a protected zone in respect of Bemisia tabaci Genn (European populations).

| (3) | The territory of Azores in Portugal was recognised until 30 April 2018 as a protected zone in respect of Globodera pallida (Stone) Behrens, Globodera rostochiensis (Wollenweber) Behrens and Rhynchophorus ferrugineus (Olivier). From further information provided by Portugal, it appears that the territory of Azores continues to be free from those organisms. Therefore, Azores should be recognised as a protected zone in respect of those harmful organisms without any time limitation. |
| --- | --- |

(3)

The territory of Azores in Portugal was recognised until 30 April 2018 as a protected zone in respect of Globodera pallida (Stone) Behrens, Globodera rostochiensis (Wollenweber) Behrens and Rhynchophorus ferrugineus (Olivier). From further information provided by Portugal, it appears that the territory of Azores continues to be free from those organisms. Therefore, Azores should be recognised as a protected zone in respect of those harmful organisms without any time limitation.

| (4) | Ireland and the United Kingdom have requested that the territories of Ireland and Northern Ireland, respectively, be recognised as a protected zone in respect of Liriomyza huidobrensis (Blanchard) and Liriomyza trifolii (Burgess). On the basis of surveys conducted since 2011 in Ireland and since 2012 in Northern Ireland in the United Kingdom, Ireland and the United Kingdom have submitted evidence that the harmful organisms concerned do not occur in the respective territories, despite favourable conditions for those organisms to establish there. It is, however, necessary that further surveys be carried out. Those surveys should further be monitored by experts under the authority of the Commission. Therefore, Ireland and Northern Ireland in the United Kingdom should be recognised as a protected zone in respect of Liriomyza huidobrensis and Liriomyza trifolii until 30 April 2020. |
| --- | --- |

(4)

Ireland and the United Kingdom have requested that the territories of Ireland and Northern Ireland, respectively, be recognised as a protected zone in respect of Liriomyza huidobrensis (Blanchard) and Liriomyza trifolii (Burgess). On the basis of surveys conducted since 2011 in Ireland and since 2012 in Northern Ireland in the United Kingdom, Ireland and the United Kingdom have submitted evidence that the harmful organisms concerned do not occur in the respective territories, despite favourable conditions for those organisms to establish there. It is, however, necessary that further surveys be carried out. Those surveys should further be monitored by experts under the authority of the Commission. Therefore, Ireland and Northern Ireland in the United Kingdom should be recognised as a protected zone in respect of Liriomyza huidobrensis and Liriomyza trifolii until 30 April 2020.

| (5) | The territories of Ireland, Malta and the United Kingdom were recognised until 30 April 2018 as a protected zone in respect of Paysandisia archon (Burmeister). From further information provided by Ireland, Malta and the United Kingdom, it appears that their territories continue to be free from that organism. Therefore, Ireland, Malta and the United Kingdom should be recognised as a protected zone in respect of Paysandisia archon without any time limitation. |
| --- | --- |

(5)

The territories of Ireland, Malta and the United Kingdom were recognised until 30 April 2018 as a protected zone in respect of Paysandisia archon (Burmeister). From further information provided by Ireland, Malta and the United Kingdom, it appears that their territories continue to be free from that organism. Therefore, Ireland, Malta and the United Kingdom should be recognised as a protected zone in respect of Paysandisia archon without any time limitation.

| (6) | The territories of Ireland and the United Kingdom were recognised until 30 April 2018 as a protected zone in respect of Rhynchophorus ferrugineus (Olivier). From further information provided by Ireland and the United Kingdom, it appears that their territories continue to be free from that organism. Therefore, Ireland and the United Kingdom should be recognised as a protected zone in respect of Rhynchophorus ferrugineus without any time limitation. |
| --- | --- |

(6)

The territories of Ireland and the United Kingdom were recognised until 30 April 2018 as a protected zone in respect of Rhynchophorus ferrugineus (Olivier). From further information provided by Ireland and the United Kingdom, it appears that their territories continue to be free from that organism. Therefore, Ireland and the United Kingdom should be recognised as a protected zone in respect of Rhynchophorus ferrugineus without any time limitation.

| (7) | The territory of the United Kingdom was recognised until 30 April 2018 as a protected zone in respect of Thaumetopoea pityocampa Denis & Schiffermüller and ‘Candidatus Phytoplasma ulmi’. From further information provided by the United Kingdom, it appears that their territory continues to be free from those organisms. Therefore, the United Kingdom should be recognised as a protected zone in respect of Thaumetopoea pityocampa Denis & Schiffermüller and ‘Candidatus Phytoplasma ulmi’ without any time limitation. |
| --- | --- |

(7)

The territory of the United Kingdom was recognised until 30 April 2018 as a protected zone in respect of Thaumetopoea pityocampa Denis & Schiffermüller and ‘Candidatus Phytoplasma ulmi’. From further information provided by the United Kingdom, it appears that their territory continues to be free from those organisms. Therefore, the United Kingdom should be recognised as a protected zone in respect of Thaumetopoea pityocampa Denis & Schiffermüller and ‘Candidatus Phytoplasma ulmi’ without any time limitation.

| (8) | The territory of the United Kingdom, with the exception of certain local authority areas, was recognised as a protected zone with respect to Thaumetopoea processionea L. until 30 April 2018. The United Kingdom has submitted information showing that Thaumetopoea processionea L. is now established in the local authority areas of Barking and Dagenham; Basildon; Basingstoke and Dene; Bexley; Bracknell Forest; Brentwood; Broxbourne; Castle Point; Chelmsford; Chiltem; Crawley; Dacorum; Dartford; East Hertfordshire; Enfield; Epping Forest; Gravesham; Greenwich; Harlow; Hart; Havering; Hertsmere; Horsham; Littlesford; Medway; Mid Sussex; Mole Valley; Newham; North Hertfordshire; Redbridge; Reigate and Banstead; Rushmoor; Sevenoaks; South Bedfordshire; South Bucks; St Albans; Surrey Heath; Tandridge; Three Rivers; Thurrock; Tonbridge and Malling; Waltham Forest; Watford; Waverley; Welwyn Hatfield; Windsor and Maidenhead, Wokingham and Wycombe. Those areas should therefore no longer be recognised as part of the protected zone of the United Kingdom and be added to the list of local authority areas excluded from the protected zone. That information also shows that the rest of the territory of the United Kingdom, which was recognised as a protected zone with respect to Thaumetopoea processionea L. appears to continue to be free from that harmful organism. It is, however, necessary that further surveys be carried out. Those surveys should be further monitored by experts under the authority of the Commission. Therefore, the United Kingdom, with the exception of certain local authority areas, should continue to be recognised as a protected zone in respect of Thaumetopoea processionea L. until 30 April 2020. |
| --- | --- |

(8)

The territory of the United Kingdom, with the exception of certain local authority areas, was recognised as a protected zone with respect to Thaumetopoea processionea L. until 30 April 2018. The United Kingdom has submitted information showing that Thaumetopoea processionea L. is now established in the local authority areas of Barking and Dagenham; Basildon; Basingstoke and Dene; Bexley; Bracknell Forest; Brentwood; Broxbourne; Castle Point; Chelmsford; Chiltem; Crawley; Dacorum; Dartford; East Hertfordshire; Enfield; Epping Forest; Gravesham; Greenwich; Harlow; Hart; Havering; Hertsmere; Horsham; Littlesford; Medway; Mid Sussex; Mole Valley; Newham; North Hertfordshire; Redbridge; Reigate and Banstead; Rushmoor; Sevenoaks; South Bedfordshire; South Bucks; St Albans; Surrey Heath; Tandridge; Three Rivers; Thurrock; Tonbridge and Malling; Waltham Forest; Watford; Waverley; Welwyn Hatfield; Windsor and Maidenhead, Wokingham and Wycombe. Those areas should therefore no longer be recognised as part of the protected zone of the United Kingdom and be added to the list of local authority areas excluded from the protected zone. That information also shows that the rest of the territory of the United Kingdom, which was recognised as a protected zone with respect to Thaumetopoea processionea L. appears to continue to be free from that harmful organism. It is, however, necessary that further surveys be carried out. Those surveys should be further monitored by experts under the authority of the Commission. Therefore, the United Kingdom, with the exception of certain local authority areas, should continue to be recognised as a protected zone in respect of Thaumetopoea processionea L. until 30 April 2020.

| (9) | The territory of Sicily in Italy was recognised as a permanent protected zone with respect to Erwinia amylovora (Burr.) Winsl. et al. Italy has submitted information showing that Erwinia amylovora (Burr.) Winsl. et al. is now established in the municipalities of Cesarò (Messina Province), Maniace, Bronte, Adrano (Catania Province) and Centuripe, Regalbuto and Troina (Enna Province) in Sicily. The municipalities of Cesarò (Messina Province), Maniace, Bronte, Adrano (Catania Province) and Centuripe, Regalbuto and Troina (Enna Province) should therefore no longer be recognised as part of the protected zone of Italy in Sicily in respect of Erwinia amylovora (Burr.) Winsl. et al. |
| --- | --- |

(9)

The territory of Sicily in Italy was recognised as a permanent protected zone with respect to Erwinia amylovora (Burr.) Winsl. et al. Italy has submitted information showing that Erwinia amylovora (Burr.) Winsl. et al. is now established in the municipalities of Cesarò (Messina Province), Maniace, Bronte, Adrano (Catania Province) and Centuripe, Regalbuto and Troina (Enna Province) in Sicily. The municipalities of Cesarò (Messina Province), Maniace, Bronte, Adrano (Catania Province) and Centuripe, Regalbuto and Troina (Enna Province) should therefore no longer be recognised as part of the protected zone of Italy in Sicily in respect of Erwinia amylovora (Burr.) Winsl. et al.

| (10) | Furthermore, certain parts of the territory of Italy were recognised as a protected zone with respect to Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2018. Italy has submitted information showing that Erwinia amylovora (Burr.) Winsl. et al. is now established in the provinces of Parma and Piacenza, which are the only remaining parts of Emilia-Romagna that are recognised as a protected zone in respect of Erwinia amylovora (Burr.) Winsl. et al. Emilia-Romagna should therefore no longer be recognised as part of the protected zone of Italy. That information also shows that the rest of the territory of Italy which was recognised as a protected zone with respect to Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2018 appears to continue to be free from that harmful organism. It is, however, necessary that further surveys be carried out. Those surveys should further be monitored by experts under the authority of the Commission. Therefore, the territory of Italy which was recognised as a protected zone with respect to Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2018, with the exception of certain provinces, including those of Parma and Piacenza in Emilia-Romagna, should be recognised as a protected zone in respect of Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2020. |
| --- | --- |

(10)

Furthermore, certain parts of the territory of Italy were recognised as a protected zone with respect to Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2018. Italy has submitted information showing that Erwinia amylovora (Burr.) Winsl. et al. is now established in the provinces of Parma and Piacenza, which are the only remaining parts of Emilia-Romagna that are recognised as a protected zone in respect of Erwinia amylovora (Burr.) Winsl. et al. Emilia-Romagna should therefore no longer be recognised as part of the protected zone of Italy. That information also shows that the rest of the territory of Italy which was recognised as a protected zone with respect to Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2018 appears to continue to be free from that harmful organism. It is, however, necessary that further surveys be carried out. Those surveys should further be monitored by experts under the authority of the Commission. Therefore, the territory of Italy which was recognised as a protected zone with respect to Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2018, with the exception of certain provinces, including those of Parma and Piacenza in Emilia-Romagna, should be recognised as a protected zone in respect of Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2020.

| (11) | The territory of Northern Ireland, with the exception of certain townlands, was recognised as part of the protected zone of the United Kingdom with respect to Erwinia amylovora (Burr.) Winsl. et al. The United Kingdom has submitted information showing that Erwinia amylovora (Burr.) Winsl. et al. is now established also in other parts of Northern Ireland and requested the revocation of the status of protected zone for the entire territory of Northern Ireland. Northern Ireland should therefore no longer be recognised as being part of the protected zone of the United Kingdom in respect of Erwinia amylovora (Burr.) Winsl. et al. |
| --- | --- |

(11)

The territory of Northern Ireland, with the exception of certain townlands, was recognised as part of the protected zone of the United Kingdom with respect to Erwinia amylovora (Burr.) Winsl. et al. The United Kingdom has submitted information showing that Erwinia amylovora (Burr.) Winsl. et al. is now established also in other parts of Northern Ireland and requested the revocation of the status of protected zone for the entire territory of Northern Ireland. Northern Ireland should therefore no longer be recognised as being part of the protected zone of the United Kingdom in respect of Erwinia amylovora (Burr.) Winsl. et al.

| (12) | The territories of Ireland, Lithuania, Slovenia and Slovakia, except certain areas, were recognised as protected zones with respect to Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2018. From further information provided by Ireland, Lithuania, Slovenia and Slovakia it appears that the sporadic and isolated outbreaks of that harmful organism in some parts of the protected zone have been either eradicated or are under eradication and that the rest of their territories, except certain areas, continues to be free from that harmful organism. That information also shows that so far none of the outbreak eradications has taken more than two years. It is, however, necessary that further surveys be carried out. Those surveys should further be monitored by experts under the authority of the Commission. Therefore, the territories of Ireland, Lithuania, Slovenia and Slovakia, except certain areas, should be recognised as protected zones in respect of Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2020. |
| --- | --- |

(12)

The territories of Ireland, Lithuania, Slovenia and Slovakia, except certain areas, were recognised as protected zones with respect to Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2018. From further information provided by Ireland, Lithuania, Slovenia and Slovakia it appears that the sporadic and isolated outbreaks of that harmful organism in some parts of the protected zone have been either eradicated or are under eradication and that the rest of their territories, except certain areas, continues to be free from that harmful organism. That information also shows that so far none of the outbreak eradications has taken more than two years. It is, however, necessary that further surveys be carried out. Those surveys should further be monitored by experts under the authority of the Commission. Therefore, the territories of Ireland, Lithuania, Slovenia and Slovakia, except certain areas, should be recognised as protected zones in respect of Erwinia amylovora (Burr.) Winsl. et al. until 30 April 2020.

| (13) | The territory of the United Kingdom has been recognised until 30 April 2018 as a protected zone in respect of Xanthomonas arboricola pv. pruni (Smith) Vauterin et al. From further information provided by the United Kingdom, it appears that the sporadic and isolated outbreaks of that harmful organism in some parts of the protected zone have been either eradicated or are under eradication and that the rest of its territory continues to be free from that harmful organism. That information also shows that so far none of the outbreak eradications has taken more than two years. It is, however, necessary that the eradication efforts continue and further surveys be carried out. Those surveys should further be monitored by experts under the authority of the Commission. Therefore, the recognition of the United Kingdom as a protected zone in respect of Xanthomonas arboricola pv. pruni (Smith) Vauterin et al. should be extended until 30 April 2020. |
| --- | --- |

(13)

The territory of the United Kingdom has been recognised until 30 April 2018 as a protected zone in respect of Xanthomonas arboricola pv. pruni (Smith) Vauterin et al. From further information provided by the United Kingdom, it appears that the sporadic and isolated outbreaks of that harmful organism in some parts of the protected zone have been either eradicated or are under eradication and that the rest of its territory continues to be free from that harmful organism. That information also shows that so far none of the outbreak eradications has taken more than two years. It is, however, necessary that the eradication efforts continue and further surveys be carried out. Those surveys should further be monitored by experts under the authority of the Commission. Therefore, the recognition of the United Kingdom as a protected zone in respect of Xanthomonas arboricola pv. pruni (Smith) Vauterin et al. should be extended until 30 April 2020.

| (14) | Ireland has been recognised until 30 April 2018 as a protected zone in respect of Ceratocystis platani (J.M. Walter) Engelbr. & T.C. Harr. From further information provided by Ireland, it appears that its territory continues to be free from that harmful organism. Therefore, Ireland should be recognised as a protected zone in respect of that harmful organism without any time limitation. |
| --- | --- |

(14)

Ireland has been recognised until 30 April 2018 as a protected zone in respect of Ceratocystis platani (J.M. Walter) Engelbr. & T.C. Harr. From further information provided by Ireland, it appears that its territory continues to be free from that harmful organism. Therefore, Ireland should be recognised as a protected zone in respect of that harmful organism without any time limitation.

| (15) | The territory of Northern Ireland in the United Kingdom was recognised as a protected zone with respect to Gremmeniella abietina (Lag.) Morelet. The United Kingdom has submitted information showing that Gremmeniella abietina (Lag.) Morelet is now established in Northern Ireland. Northern Ireland should therefore no longer be recognised as a protected zone in respect of Gremmeniella abietina (Lag.) Morelet. |
| --- | --- |

(15)

The territory of Northern Ireland in the United Kingdom was recognised as a protected zone with respect to Gremmeniella abietina (Lag.) Morelet. The United Kingdom has submitted information showing that Gremmeniella abietina (Lag.) Morelet is now established in Northern Ireland. Northern Ireland should therefore no longer be recognised as a protected zone in respect of Gremmeniella abietina (Lag.) Morelet.

| (16) | The territory of Greece, with the exception of certain Regional Units, was recognised as a protected zone with respect to Citrus tristeza virus (European strains). Greece has submitted information showing that Citrus tristeza virus (European strains) is now established also in the Regional Units of Arta and Lakonia. The Regional Units of Arta and Lakonia should therefore no longer be recognised as part of the protected zone of Greece in respect of Citrus tristeza virus (European strains). |
| --- | --- |

(16)

The territory of Greece, with the exception of certain Regional Units, was recognised as a protected zone with respect to Citrus tristeza virus (European strains). Greece has submitted information showing that Citrus tristeza virus (European strains) is now established also in the Regional Units of Arta and Lakonia. The Regional Units of Arta and Lakonia should therefore no longer be recognised as part of the protected zone of Greece in respect of Citrus tristeza virus (European strains).

| (17) | Sweden was recognised as a protected zone with respect to Tomato spotted wilt virus. Sweden requested the revocation of the status of its protected zone due to an insufficient degree of continued economic benefit. Sweden should therefore no longer be recognised as a protected zone in respect of Tomato spotted wilt virus. |
| --- | --- |

(17)

Sweden was recognised as a protected zone with respect to Tomato spotted wilt virus. Sweden requested the revocation of the status of its protected zone due to an insufficient degree of continued economic benefit. Sweden should therefore no longer be recognised as a protected zone in respect of Tomato spotted wilt virus.

| (18) | For the purpose of clarity, the entire Annex to Regulation (EC) No 690/2008 should be replaced. |
| --- | --- |

(18)

For the purpose of clarity, the entire Annex to Regulation (EC) No 690/2008 should be replaced.

| (19) | Regulation (EC) No 690/2008 should therefore be amended accordingly. |
| --- | --- |

(19)

Regulation (EC) No 690/2008 should therefore be amended accordingly.

| (20) | Since certain areas have been recognised as protected zones pursuant to Regulation (EC) No 690/2008 until 30 April 2018, this Regulation should apply from 1 May 2018 in order to ensure legal continuity and to avoid disruption of trade. |
| --- | --- |

(20)

Since certain areas have been recognised as protected zones pursuant to Regulation (EC) No 690/2008 until 30 April 2018, this Regulation should apply from 1 May 2018 in order to ensure legal continuity and to avoid disruption of trade.

| (21) | The measures provided for in this Regulation are in accordance with the opinion of the Standing Committee on Plants, Animals, Food and Feed, |
| --- | --- |

(21)

The measures provided for in this Regulation are in accordance with the opinion of the Standing Committee on Plants, Animals, Food and Feed,

HAS ADOPTED THIS REGULATION:

Article 1

Annex I to Regulation (EC) No 690/2008 is replaced by the Annex to this Regulation.

Article 2

This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union.

It shall apply from 1 May 2018.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 31 May 2018.

For the Commission

The President

Jean-Claude JUNCKER

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(1)  
  OJ L 169, 10.7.2000, p. 1.

1

(2)  Commission Regulation (EC) No 690/2008 of 4 July 2008 recognising protected zones exposed to particular plant health risks in the Community (OJ L 193, 22.7.2008, p. 1).

2

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ANNEX

Annex I to Regulation (EC) No 690/2008 is replaced by the following:

‘ANNEX I

Zones in the community recognised as “protected zones”, in respect of harmful organism(s) listed against their names

| Harmful organisms | Protected zones: territory of |
| --- | --- |
| (a)   Insects, mites and nematodes, at all stages of their development |
| 1. | Anthonomus grandis (Boh.) |

Harmful organisms

Protected zones: territory of

Insects, mites and nematodes, at all stages of their development

1.

Anthonomus grandis (Boh.)

Greece, Spain (Andalusia, Catalonia, Extremadura, Murcia, Valencia)

| 2. | Bemisia tabaci Genn. (European populations) |
| --- | --- |

2.

Bemisia tabaci Genn. (European populations)

Ireland, Portugal (Azores, Beira Interior, Beira Litoral, Entre Douro e Minho and Trás-os-Montes), Sweden, United Kingdom

| 3. | Cephalcia lariciphila (Klug.) |
| --- | --- |

3.

Cephalcia lariciphila (Klug.)

Ireland, United Kingdom (Northern Ireland, Isle of Man and Jersey)

| 3.1. | Daktulosphaira vitifoliae (Fitch) |
| --- | --- |

3.1.

Daktulosphaira vitifoliae (Fitch)

Cyprus

| 4. | Dendroctonus micans Kugelan |
| --- | --- |

4.

Dendroctonus micans Kugelan

Ireland, Greece, United Kingdom (Northern Ireland, Isle of Man and Jersey)

| 4.1. | Dryocosmus kuriphilus Yasumatsu |
| --- | --- |

4.1.

Dryocosmus kuriphilus Yasumatsu

Ireland, United Kingdom

| 5. | Gilpinia hercyniae (Hartig) |
| --- | --- |

5.

Gilpinia hercyniae (Hartig)

Ireland, Greece, United Kingdom (Northern Ireland, Isle of Man and Jersey)

| 6. | Globodera pallida (Stone) Behrens |
| --- | --- |

6.

Globodera pallida (Stone) Behrens

Latvia, Portugal (Azores), Slovenia, Slovakia, Finland

| 6.1. | Globodera rostochiensis (Wollenweber) Behrens |
| --- | --- |

6.1.

Globodera rostochiensis (Wollenweber) Behrens

Portugal (Azores)

| 7. | Gonipterus scutellatus Gyll. |
| --- | --- |

7.

Gonipterus scutellatus Gyll.

Greece, Portugal (Azores)

| 8. | Ips amitinus Eichhof |
| --- | --- |

8.

Ips amitinus Eichhof

Ireland, Greece, United Kingdom

| 9. | Ips cembrae Heer |
| --- | --- |

9.

Ips cembrae Heer

Ireland, Greece, United Kingdom (Northern Ireland and Isle of Man)

| 10. | Ips duplicatus Sahlberg |
| --- | --- |

10.

Ips duplicatus Sahlberg

Ireland, Greece, United Kingdom

| 11. | Ips sexdentatus Bőrner |
| --- | --- |

11.

Ips sexdentatus Bőrner

Ireland, Cyprus, United Kingdom (Northern Ireland and Isle of Man)

| 12. | Ips typographus Heer |
| --- | --- |

12.

Ips typographus Heer

Ireland, United Kingdom

| 13. | Leptinotarsa decemlineata Say |
| --- | --- |

13.

Leptinotarsa decemlineata Say

Ireland, Spain (Ibiza and Menorca), Cyprus, Malta, Portugal (Azores and Madeira), Finland (districts of Åland, Häme, Kymi, Pirkanmaa, Satakunta, Turku, Uusimaa), Sweden (counties of Blekinge, Gotland, Halland, Kalmar and Skåne), United Kingdom

| 14. | Liriomyza bryoniae (Kaltenbach) |
| --- | --- |

14.

Liriomyza bryoniae (Kaltenbach)

Ireland, United Kingdom (Northern Ireland)

| 14.01. | Liriomyza huidobrensis (Blanchard) |
| --- | --- |

14.01.

Liriomyza huidobrensis (Blanchard)

Ireland (until 30 April 2020), United Kingdom (Northern Ireland) (until 30 April 2020)

| 14.02. | Liriomyza trifolii (Burgess) |
| --- | --- |

14.02.

Liriomyza trifolii (Burgess)

Ireland (until 30 April 2020), United Kingdom (Northern Ireland) (until 30 April 2020)

| 14.1. | Paysandisia archon (Burmeister) |
| --- | --- |

14.1.

Paysandisia archon (Burmeister)

Ireland, Malta, United Kingdom

| 14.2. | Rhynchophorus ferrugineus (Olivier) |
| --- | --- |

14.2.

Rhynchophorus ferrugineus (Olivier)

Ireland, Portugal (Azores), United Kingdom

| 15. | Sternochetus mangiferae Fabricius |
| --- | --- |

15.

Sternochetus mangiferae Fabricius

Spain (Granada and Malaga), Portugal (Alentejo, Algarve and Madeira)

| 15.1. | Thaumetopoea pityocampa Denis & Schiffermüller |
| --- | --- |

15.1.

Thaumetopoea pityocampa Denis & Schiffermüller

United Kingdom

| 16. | Thaumetopoea processionea L. |
| --- | --- |

16.

Thaumetopoea processionea L.

Ireland, United Kingdom (excluding the local authority areas of Barking and Dagenham; Barnet; Basildon; Basingstoke and Dene; Bexley; Bracknell Forest; Brent; Brentwood; Bromley; Broxbourne; Camden; Castle Point; Chelmsford; Chiltem; City of London; City of Westminster; Crawley; Croydon; Dacorum; Dartford; Ealing; East Hertfordshire; Elmbridge District; Enfield; Epping Forest; Epsom and Ewell District; Gravesham; Greenwich; Guildford; Hackney; Hammersmith & Fulham; Haringey; Harlow; Harrow; Hart; Havering; Hertsmere; Hillingdon; Horsham; Hounslow; Islington; Kensington & Chelsea; Kingston upon Thames; Lambeth; Lewisham; Littlesford; Medway; Merton; Mid Sussex; Mole Valley; Newham; North Hertfordshire; Reading; Redbridge; Reigate and Banstead; Richmond Upon Thames; Runnymede District; Rushmoor; Sevenoaks; Slough; South Bedfordshire; South Bucks; South Oxfordshire; Southwark; Spelthorne District; St Albans; Sutton; Surrey Heath; Tandridge; Three Rivers; Thurrock; Tonbridge and Malling; Tower Hamlets; Waltham Forest; Wandsworth; Watford; Waverley; Welwyn Hatfield; West Berkshire; Windsor and Maidenhead; Woking, Wokingham and Wycombe) (until 30 April 2020)

Bacteria

| 01. | “Candidatus Phytoplasma ulmi” |
| --- | --- |

01.

“Candidatus Phytoplasma ulmi”

United Kingdom

| 1. | Curtobacterium flaccumfaciens pv. flaccumfaciens (Hedges) Col. |
| --- | --- |

1.

Curtobacterium flaccumfaciens pv. flaccumfaciens (Hedges) Col.

Greece, Spain

| 2. | Erwinia amylovora (Burrill) Winslow et al. |
| --- | --- |

2.

Erwinia amylovora (Burrill) Winslow et al.

| — | Estonia, Spain (except the autonomous communities of Andalucía, Aragón, Castilla la Mancha, Castilla y León, Extremadura, the autonomous community of Madrid, Murcia, Navarra and La Rioja, the province of Guipuzcoa (Basque Country), the comarcas of Garrigues, Noguera, Pla d'Urgell, Segrià and Urgell in the province of Lleida (Comunidad autonoma de Catalunya); and the municipalities of Alborache and Turís in the province of Valencia and the Comarcas de L'Alt Vinalopó and El Vinalopó Mitjà in the province of Alicante (Comunidad Valenciana)), France (Corsica), Italy (Abruzzo, Basilicata, Calabria, Campania, Lazio, Liguria, Marche, Molise, Piedmont (except the communes of Busca, Centallo and Tarantasca in the province of Cuneo), Sardinia, Sicily (excluding the municipalities of Cesarò (Messina Province), Maniace, Bronte, Adrano (Catania Province) and Centuripe, Regalbuto and Troina (Enna Province)), Tuscany, Umbria, Valle d'Aosta), Latvia, Portugal, Finland, United Kingdom (Isle of Man; Channel Islands), |
| --- | --- |

—

Estonia, Spain (except the autonomous communities of Andalucía, Aragón, Castilla la Mancha, Castilla y León, Extremadura, the autonomous community of Madrid, Murcia, Navarra and La Rioja, the province of Guipuzcoa (Basque Country), the comarcas of Garrigues, Noguera, Pla d'Urgell, Segrià and Urgell in the province of Lleida (Comunidad autonoma de Catalunya); and the municipalities of Alborache and Turís in the province of Valencia and the Comarcas de L'Alt Vinalopó and El Vinalopó Mitjà in the province of Alicante (Comunidad Valenciana)), France (Corsica), Italy (Abruzzo, Basilicata, Calabria, Campania, Lazio, Liguria, Marche, Molise, Piedmont (except the communes of Busca, Centallo and Tarantasca in the province of Cuneo), Sardinia, Sicily (excluding the municipalities of Cesarò (Messina Province), Maniace, Bronte, Adrano (Catania Province) and Centuripe, Regalbuto and Troina (Enna Province)), Tuscany, Umbria, Valle d'Aosta), Latvia, Portugal, Finland, United Kingdom (Isle of Man; Channel Islands),

| — | and, until 30 April 2020, Ireland (except Galway city), Italy (Apúlia, Lombardy (except the provinces of Milano, Mantua, Sondrio and Varese), Veneto (except the provinces of Rovigo and Venice, the communes Barbona, Boara Pisani, Castelbaldo, Masi, Piacenza d'Adige, S. Urbano and Vescovana in the province of Padova and the area situated to the South of highway A4 in the province of Verona)), Lithuania (except the municipalities of Babtai and Kėdainiai (region of Kaunas)), Slovenia (except the regions Gorenjska, Koroška, Maribor and Notranjska, and the communes of Lendava and Renče-Vogrsko (south from the highway H4)), Slovakia (except the county of Dunajská Streda, Hronovce and Hronské Kľačany (Levice County), Dvory nad Žitavou (Nové Zámky County), Málinec (Poltár County), Hrhov (Rožňava County), Veľké Ripňany (Topoľčany County), Kazimír, Luhyňa, Malý Horeš, Svätuše and Zatín (Trebišov County)) |
| --- | --- |

—

and, until 30 April 2020, Ireland (except Galway city), Italy (Apúlia, Lombardy (except the provinces of Milano, Mantua, Sondrio and Varese), Veneto (except the provinces of Rovigo and Venice, the communes Barbona, Boara Pisani, Castelbaldo, Masi, Piacenza d'Adige, S. Urbano and Vescovana in the province of Padova and the area situated to the South of highway A4 in the province of Verona)), Lithuania (except the municipalities of Babtai and Kėdainiai (region of Kaunas)), Slovenia (except the regions Gorenjska, Koroška, Maribor and Notranjska, and the communes of Lendava and Renče-Vogrsko (south from the highway H4)), Slovakia (except the county of Dunajská Streda, Hronovce and Hronské Kľačany (Levice County), Dvory nad Žitavou (Nové Zámky County), Málinec (Poltár County), Hrhov (Rožňava County), Veľké Ripňany (Topoľčany County), Kazimír, Luhyňa, Malý Horeš, Svätuše and Zatín (Trebišov County))

| 3. | Xanthomonas arboricola pv. pruni (Smith) Vauterin et al. |
| --- | --- |

3.

Xanthomonas arboricola pv. pruni (Smith) Vauterin et al.

United Kingdom (until 30 April 2020)

Fungi

| 01. | Ceratocystis platani (J.M.Walter) Engelbr. & T.C.Harr. |
| --- | --- |

01.

Ceratocystis platani (J.M.Walter) Engelbr. & T.C.Harr.

Ireland, United Kingdom

| 02. | Cryphonectria parasitica (Murrill) Barr. |
| --- | --- |

02.

Cryphonectria parasitica (Murrill) Barr.

Czech Republic, Ireland, Sweden, United Kingdom

| 1. | Glomerella gossypii Edgerton |
| --- | --- |

1.

Glomerella gossypii Edgerton

Greece

| 2. | Gremmeniella abietina (Lag.) Morelet |
| --- | --- |

2.

Gremmeniella abietina (Lag.) Morelet

Ireland

| 3. | Hypoxylon mammatum (Wahlenberg) J. Miller |
| --- | --- |

3.

Hypoxylon mammatum (Wahlenberg) J. Miller

Ireland, United Kingdom (Northern Ireland)

Viruses and virus-like organisms

| 1. | Beet necrotic yellow vein virus |
| --- | --- |

1.

Beet necrotic yellow vein virus

Ireland, France (Brittany), Portugal (Azores), Finland, United Kingdom (Northern Ireland)

| 3. | Citrus tristeza virus (European strains) |
| --- | --- |

3.

Citrus tristeza virus (European strains)

Greece (except the Regional Units of Argolida, Arta, Chania and Lakonia), Malta, Portugal (except Algarve, Madeira and the county of Odemira in Alentejo)

| 4. | Grapevine flavescence dorée MLO |
| --- | --- |

4.

Grapevine flavescence dorée MLO

Czech Republic, France (Alsace, Champagne-Ardenne, Picardie (département de l'Aisne), Ile de France (communes de Citry, Nanteuil-sur-Marne and Saâcy-sur- Marne) and Lorraine)), Italy (Apúlia, Sardinia and Basilicata)

---

DECISIONS

| 1.6.2018 | EN | Official Journal of the European Union | L 136/9 |
| --- | --- | --- | --- |

1.6.2018

EN

Official Journal of the European Union

L 136/9

---

COUNCIL DECISION (EU) 2018/792

of 28 May 2018

appointing a member, proposed by the Kingdom of Sweden, of the Committee of the Regions

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 305 thereof,

Having regard to the proposal of the Swedish Government,

Whereas:

| (1) | On 26 January 2015, 5 February 2015 and 23 June 2015, the Council adopted Decisions (EU) 2015/116 (1), (EU) 2015/190 (2) and (EU) 2015/994 (3) appointing the members and alternate members of the Committee of the Regions for the period from 26 January 2015 to 25 January 2020. On 30 November 2017, by Council Decision (EU) 2017/2237 (4), Ms Heléne FRITZON was replaced by Ms Katrin STJERNFEDT JAMMEH as a member. |
| --- | --- |

(1)

On 26 January 2015, 5 February 2015 and 23 June 2015, the Council adopted Decisions (EU) 2015/116 (1), (EU) 2015/190 (2) and (EU) 2015/994 (3) appointing the members and alternate members of the Committee of the Regions for the period from 26 January 2015 to 25 January 2020. On 30 November 2017, by Council Decision (EU) 2017/2237 (4), Ms Heléne FRITZON was replaced by Ms Katrin STJERNFEDT JAMMEH as a member.

| (2) | A member's seat on the Committee of the Regions has become vacant following the end of the term of office of Ms Katrin STJERNFELDT JAMMEH as a member of the Committee of the Regions, |
| --- | --- |

(2)

A member's seat on the Committee of the Regions has become vacant following the end of the term of office of Ms Katrin STJERNFELDT JAMMEH as a member of the Committee of the Regions,

HAS ADOPTED THIS DECISION:

Article 1

The following is hereby appointed as a member of the Committee of the Regions for the remainder of the current term of office, which runs until 25 January 2020:

| — | Ms Carina NILSSON, Ledamot i kommunfullmäktige, Malmö kommun. |
| --- | --- |

—

Ms Carina NILSSON, Ledamot i kommunfullmäktige, Malmö kommun.

Article 2

This Decision shall enter into force on the date of its adoption.

Done at Brussels, 28 May 2018.

For the Council

The President

E. KARANIKOLOV

---

(1)  Council Decision (EU) 2015/116 of 26 January 2015 appointing the members and alternate members of the Committee of the Regions for the period from 26 January 2015 to 25 January 2020 (OJ L 20, 27.1.2015, p. 42).

1

(2)  Council Decision (EU) 2015/190 of 5 February 2015 appointing the members and alternate members of the Committee of the Regions for the period from 26 January 2015 to 25 January 2020 (OJ L 31, 7.2.2015, p. 25).

2

(3)  Council Decision (EU) 2015/994 of 23 June 2015 appointing the members and alternate members of the Committee of the Regions for the period from 26 January 2015 to 25 January 2020 (OJ L 159, 25.6.2015, p. 70).

3

(4)  Council Decision (EU) 2017/2237 of 30 November 2017 appointing two members, proposed by the Kingdom of Sweden, of the Committee of the Regions (OJ L 320, 6.12.2017, p. 10).

4

---

| 1.6.2018 | EN | Official Journal of the European Union | L 136/10 |
| --- | --- | --- | --- |

1.6.2018

EN

Official Journal of the European Union

L 136/10

---

COMMISSION IMPLEMENTING DECISION (EU) 2018/793

of 28 May 2018

on the clearance of the accounts of the paying agencies of Member States concerning expenditure financed by the European Agricultural Fund for Rural Development (EAFRD) for financial year 2017

(notified under document C(2018) 3174)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1306/2013 of the European Parliament and of the Council of 17 December 2013 on the financing, management and monitoring of the common agricultural policy and repealing Council Regulations (EEC) No 352/78, (EC) No 165/94, (EC) No 2799/98, (EC) No 814/2000, (EC) No 1290/2005 and (EC) No 485/2008 (1), and in particular Article 51 thereof,

After consulting the Committee on the Agricultural Funds,

Whereas:

| (1) | Pursuant to Article 51 of Regulation (EU) No 1306/2013, the Commission, on the basis of the annual accounts submitted by the Member States, accompanied by the information required for the clearance of accounts and an audit opinion regarding the completeness, accuracy and veracity of the accounts and the reports established by the certification bodies, has to clear the accounts of the paying agencies referred to in Article 7 of that Regulation. |
| --- | --- |

(1)

Pursuant to Article 51 of Regulation (EU) No 1306/2013, the Commission, on the basis of the annual accounts submitted by the Member States, accompanied by the information required for the clearance of accounts and an audit opinion regarding the completeness, accuracy and veracity of the accounts and the reports established by the certification bodies, has to clear the accounts of the paying agencies referred to in Article 7 of that Regulation.

| (2) | In accordance with Article 39 of Regulation (EU) No 1306/2013 the agricultural financial year begins on 16 October of year N – 1 and ends on 15 October of year N. When clearing the accounts for financial year 2017, for the purpose of aligning the reference period for European Agricultural Fund for Rural Development (EAFRD) expenditure with that of the European Agricultural Guarantee Fund (EAGF), account should be taken of expenditure incurred by the Member States between 16 October 2016 and 15 October 2017, as provided for in Article 11(1) of Commission Implementing Regulation (EU) No 908/2014 (2). |
| --- | --- |

(2)

In accordance with Article 39 of Regulation (EU) No 1306/2013 the agricultural financial year begins on 16 October of year N – 1 and ends on 15 October of year N. When clearing the accounts for financial year 2017, for the purpose of aligning the reference period for European Agricultural Fund for Rural Development (EAFRD) expenditure with that of the European Agricultural Guarantee Fund (EAGF), account should be taken of expenditure incurred by the Member States between 16 October 2016 and 15 October 2017, as provided for in Article 11(1) of Commission Implementing Regulation (EU) No 908/2014 (2).

| (3) | The second subparagraph of Article 33(2) of Implementing Regulation (EU) No 908/2014 provides that the amounts that are recoverable from, or payable to, each Member State, in accordance with the accounts clearance decision referred to in the first subparagraph of Article 33(1) of that Regulation, are to be established by deducting the intermediate payments for the financial year concerned from the expenditure recognised for that year in accordance with Article 33(1). The Commission is to deduct that amount from or add it to the next intermediate payment. |
| --- | --- |

(3)

The second subparagraph of Article 33(2) of Implementing Regulation (EU) No 908/2014 provides that the amounts that are recoverable from, or payable to, each Member State, in accordance with the accounts clearance decision referred to in the first subparagraph of Article 33(1) of that Regulation, are to be established by deducting the intermediate payments for the financial year concerned from the expenditure recognised for that year in accordance with Article 33(1). The Commission is to deduct that amount from or add it to the next intermediate payment.

| (4) | The Commission has checked the information submitted by the Member States and has communicated the results of its checks to the Member States before 30 April 2018, along with the necessary amendments. |
| --- | --- |

(4)

The Commission has checked the information submitted by the Member States and has communicated the results of its checks to the Member States before 30 April 2018, along with the necessary amendments.

| (5) | For certain paying agencies, the annual accounts and the accompanying documents permit the Commission to take a decision on the completeness, accuracy and veracity of the annual accounts submitted. |
| --- | --- |

(5)

For certain paying agencies, the annual accounts and the accompanying documents permit the Commission to take a decision on the completeness, accuracy and veracity of the annual accounts submitted.

| (6) | The information submitted by certain other paying agencies requires additional inquiries and their accounts cannot therefore be cleared in this Decision. |
| --- | --- |

(6)

The information submitted by certain other paying agencies requires additional inquiries and their accounts cannot therefore be cleared in this Decision.

| (7) | In accordance with Article 83 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (3) the deadline for interim payments, as the one laid down in Article 36(5) of Regulation (EU) No 1306/2013, may be interrupted for a maximum period of six months in order to carry out additional verifications following information received that these payments are linked to an irregularity having serious financial consequences. In adopting this Decision, the Commission should take into account the amounts interrupted in order to avoid making any inappropriate or untimely payments. |
| --- | --- |

(7)

In accordance with Article 83 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council (3) the deadline for interim payments, as the one laid down in Article 36(5) of Regulation (EU) No 1306/2013, may be interrupted for a maximum period of six months in order to carry out additional verifications following information received that these payments are linked to an irregularity having serious financial consequences. In adopting this Decision, the Commission should take into account the amounts interrupted in order to avoid making any inappropriate or untimely payments.

| (8) | Pursuant to Article 54(2) of Regulation (EU) No 1306/2013, 50 % of the financial consequences of non-recovery of irregularities should be borne by the Member State concerned, if recovery has not taken place within four years from the date of the recovery request, or within eight years where the recovery is taken before the national courts. Article 54(4) of Regulation (EU) No 1306/2013 requires Member States to attach to the annual accounts that they have to submit to the Commission, pursuant to Article 29 of Implementing Regulation (EU) No 908/2014, a certified table reflecting the amounts to be borne by them under Article 54(2) of Regulation (EU) No 1306/2013. Rules on the application of the Member States' obligation to report the amounts to be recovered are laid down in Implementing Regulation (EU) No 908/2014. Annex II to Implementing Regulation (EU) No 908/2014 sets out the model of the table that Member States have to use to provide information about amounts to be recovered. On the basis of the tables completed by the Member States, the Commission should decide on the financial consequences of non-recovery of irregularities older than four or eight years respectively. |
| --- | --- |

(8)

Pursuant to Article 54(2) of Regulation (EU) No 1306/2013, 50 % of the financial consequences of non-recovery of irregularities should be borne by the Member State concerned, if recovery has not taken place within four years from the date of the recovery request, or within eight years where the recovery is taken before the national courts. Article 54(4) of Regulation (EU) No 1306/2013 requires Member States to attach to the annual accounts that they have to submit to the Commission, pursuant to Article 29 of Implementing Regulation (EU) No 908/2014, a certified table reflecting the amounts to be borne by them under Article 54(2) of Regulation (EU) No 1306/2013. Rules on the application of the Member States' obligation to report the amounts to be recovered are laid down in Implementing Regulation (EU) No 908/2014. Annex II to Implementing Regulation (EU) No 908/2014 sets out the model of the table that Member States have to use to provide information about amounts to be recovered. On the basis of the tables completed by the Member States, the Commission should decide on the financial consequences of non-recovery of irregularities older than four or eight years respectively.

| (9) | Pursuant to Article 54(3) of Regulation (EU) No 1306/2013, on duly justified grounds, Member States may decide not to pursue recovery. Such a decision may be taken only if the costs already and likely to be incurred total more than the amount to be recovered, or if the recovery proves impossible owing to the insolvency recorded and recognised under national law, of the debtor or the persons legally responsible for the irregularity. If the decision has been taken within four years from the date of recovery request, or within eight years where the recovery is taken before the national courts, 100 % of the financial consequences of the non-recovery should be borne by the Union budget. The amounts for which a particular Member State decided not to pursue recovery and the grounds for its decision are shown in the summary report referred to in Article 54(4) in conjunction with point (c)(iv) of Article 102(1) of Regulation (EU) No 1306/2013. Therefore, such amounts should not be charged to the Member States concerned and are consequently to be borne by the Union budget. |
| --- | --- |

(9)

Pursuant to Article 54(3) of Regulation (EU) No 1306/2013, on duly justified grounds, Member States may decide not to pursue recovery. Such a decision may be taken only if the costs already and likely to be incurred total more than the amount to be recovered, or if the recovery proves impossible owing to the insolvency recorded and recognised under national law, of the debtor or the persons legally responsible for the irregularity. If the decision has been taken within four years from the date of recovery request, or within eight years where the recovery is taken before the national courts, 100 % of the financial consequences of the non-recovery should be borne by the Union budget. The amounts for which a particular Member State decided not to pursue recovery and the grounds for its decision are shown in the summary report referred to in Article 54(4) in conjunction with point (c)(iv) of Article 102(1) of Regulation (EU) No 1306/2013. Therefore, such amounts should not be charged to the Member States concerned and are consequently to be borne by the Union budget.

| (10) | There are still amounts to be charged to the Member States, as a result of the application of Article 54(2) of Regulation (EU) No 1306/2013 in relation to the 2007-2013 programming period for EAFRD. These are presented in Annex III. |
| --- | --- |

(10)

There are still amounts to be charged to the Member States, as a result of the application of Article 54(2) of Regulation (EU) No 1306/2013 in relation to the 2007-2013 programming period for EAFRD. These are presented in Annex III.

| (11) | Article 36(3)(b) of Regulation (EU) No 1306/2013 provides that intermediate payments are to be made without overrun of the total financial programmed EAFRD contribution. Pursuant to Article 23(2) of Implementing Regulation (EU) No 908/2014, where the combined total of declarations of expenditure exceeds the total programmed contribution for a rural development programme, the amount to be paid shall be capped at the programmed amount, without prejudice to the ceiling provided for in Article 34(2) of Regulation (EU) No 1306/2013. The capped amount will be subject to a later reimbursement by the Commission following the adoption of the amended financial plan or at the closure of the programming period. |
| --- | --- |

(11)

Article 36(3)(b) of Regulation (EU) No 1306/2013 provides that intermediate payments are to be made without overrun of the total financial programmed EAFRD contribution. Pursuant to Article 23(2) of Implementing Regulation (EU) No 908/2014, where the combined total of declarations of expenditure exceeds the total programmed contribution for a rural development programme, the amount to be paid shall be capped at the programmed amount, without prejudice to the ceiling provided for in Article 34(2) of Regulation (EU) No 1306/2013. The capped amount will be subject to a later reimbursement by the Commission following the adoption of the amended financial plan or at the closure of the programming period.

| (12) | Pursuant to Article 41 of Regulation (EU) No 1306/2013, the Commission has already reduced or suspended a number of intermediate payments for financial year 2017 due to expenditure not effected in accordance with Union rules. In adopting this Decision, the Commission should take into account the amounts reduced or suspended on the basis of Article 41 of Regulation (EU) No 1306/2013, in order to avoid making any undue or untimely payments, or reimbursing amounts that could later be subject to financial correction. |
| --- | --- |

(12)

Pursuant to Article 41 of Regulation (EU) No 1306/2013, the Commission has already reduced or suspended a number of intermediate payments for financial year 2017 due to expenditure not effected in accordance with Union rules. In adopting this Decision, the Commission should take into account the amounts reduced or suspended on the basis of Article 41 of Regulation (EU) No 1306/2013, in order to avoid making any undue or untimely payments, or reimbursing amounts that could later be subject to financial correction.

| (13) | In accordance with Article 51 of Regulation (EU) No 1306/2013, this Decision is without prejudice to the decisions the Commission may take subsequently to exclude from Union financing expenditure not effected in accordance with Union rules, |
| --- | --- |

(13)

In accordance with Article 51 of Regulation (EU) No 1306/2013, this Decision is without prejudice to the decisions the Commission may take subsequently to exclude from Union financing expenditure not effected in accordance with Union rules,

HAS ADOPTED THIS DECISION:

Article 1

With the exception of the paying agencies referred to in Article 2, the accounts of the Member States' paying agencies concerning expenditure financed by the European Agricultural Fund for Rural Development (EAFRD) in respect of financial year 2017 and relating to the 2014-2020 programming period, are hereby cleared.

The amounts recoverable from, or payable to, each Member State under each rural development programme pursuant to this Decision, are set out in Annex I.

Article 2

For financial year 2017, the accounts of the Member States' paying agencies in respect of expenditure for Rural Development programmes financed by the EAFRD relating to the 2014-2020 programming period, as set out in Annex II, are not covered by this Decision and shall be the subject of a future clearance of accounts Decision.

Article 3

The amounts to be charged to the Member States, as a result of the application of Article 54(2) of Regulation (EU) No 1306/2013 relating to the 2014-2020 programming period and to the 2007-2013 programming period for the European Agricultural Fund for Rural Development (EAFRD), are set out in Annex III to this Decision.

Article 4

This Decision is without prejudice to future conformity clearance decisions that the Commission may take pursuant to Article 52 of Regulation (EU) No 1306/2013 to exclude from Union financing expenditure not effected in accordance with Union rules.

Article 5

This Decision is addressed to the Member States.

Done at Brussels, 28 May 2018.

For the Commission

Phil HOGAN

Member of the Commission

---

(1)  
  OJ L 347, 20.12.2013, p. 549.

1

(2)  Commission Implementing Regulation (EU) No 908/2014 of 6 August 2014 laying down rules for the application of Regulation (EU) No 1306/2013 of the European Parliament and of the Council with regard to paying agencies and other bodies, financial management, clearance of accounts, rules on checks, securities and transparency (OJ L 255, 28.8.2014, p. 59).

2

(3)  Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320).

3

---

ANNEX I

CLEARED EAFRD EXPENDITURE BY RURAL DEVELOPMENT PROGRAMME FOR FINANCIAL YEAR 2017

AMOUNT TO BE RECOVERED FROM OR PAID TO THE MEMBER STATE PER PROGRAMME

Approved programmes with declared expenditure for EAFRD 2014-2020

| (EUR) |
| --- |
| MS | CCI | Expenditure 2017 | Corrections | Total | Non-reusable amounts | Accepted amount cleared for FY 2017 | Interim payments reimbursed to the Member State for the financial year | Amount to be recovered from (–) of paid to (+) the Member State |
| | | i | ii | iii = i + ii | iv | v = iii – iv | vi | vii = v – vi |
| AT | 2014AT06RDNP001 | 478 397 731,67 | | 478 397 731,67 | | 478 397 731,67 | 478 484 312,41 | – 86 580,74 |
| BE | 2014BE06RDRP001 | 14 116 035,12 | | 14 116 035,12 | | 14 116 035,12 | 14 116 020,99 | 14,13 |
| BE | 2014BE06RDRP002 | 23 185 996,14 | | 23 185 996,14 | | 23 185 996,14 | 22 924 377,26 | 261 618,88 |
| BG | 2014BG06RDNP001 | 194 155 360,31 | | 194 155 360,31 | | 194 155 360,31 | 194 514 061,71 | – 358 701,40 |
| CY | 2014CY06RDNP001 | 14 583 607,33 | | 14 583 607,33 | | 14 583 607,33 | 14 601 650,41 | – 18 043,08 |
| CZ | 2014CZ06RDNP001 | 260 439 728,70 | | 260 439 728,70 | | 260 439 728,70 | 259 405 974,77 | 1 033 753,93 |
| DE | 2014DE06RDRN001 | 847 676,47 | | 847 676,47 | | 847 676,47 | 847 676,48 | – 0,01 |
| DE | 2014DE06RDRP003 | 84 033 821,64 | | 84 033 821,64 | | 84 033 821,64 | 84 034 786,45 | – 964,81 |
| DE | 2014DE06RDRP004 | 202 106 079,18 | | 202 106 079,18 | | 202 106 079,18 | 202 106 079,18 | 0,00 |
| DE | 2014DE06RDRP007 | 87 240 337,67 | | 87 240 337,67 | | 87 240 337,67 | 87 240 388,46 | – 50,79 |
| DE | 2014DE06RDRP010 | 40 262 191,26 | | 40 262 191,26 | | 40 262 191,26 | 40 262 191,26 | 0,00 |
| DE | 2014DE06RDRP011 | 89 292 124,14 | | 89 292 124,14 | | 89 292 124,14 | 89 292 124,14 | 0,00 |
| DE | 2014DE06RDRP012 | 85 047 512,95 | | 85 047 512,95 | | 85 047 512,95 | 85 047 512,95 | 0,00 |
| DE | 2014DE06RDRP015 | 64 552 926,48 | | 64 552 926,48 | | 64 552 926,48 | 64 552 926,48 | 0,00 |
| DE | 2014DE06RDRP017 | 19 829 188,13 | | 19 829 188,13 | | 19 829 188,13 | 19 829 188,13 | 0,00 |
| DE | 2014DE06RDRP018 | 3 683 036,58 | | 3 683 036,58 | | 3 683 036,58 | 3 683 036,58 | 0,00 |
| DE | 2014DE06RDRP019 | 77 775 501,44 | | 77 775 501,44 | | 77 775 501,44 | 77 774 863,41 | 638,03 |
| DE | 2014DE06RDRP020 | 57 136 841,47 | | 57 136 841,47 | | 57 136 841,47 | 57 136 841,47 | 0,00 |
| DE | 2014DE06RDRP021 | 44 501 423,11 | | 44 501 423,11 | | 44 501 423,11 | 44 500 563,13 | 859,98 |
| DE | 2014DE06RDRP023 | 94 645 203,69 | | 94 645 203,69 | | 94 645 203,69 | 94 645 203,76 | – 0,07 |
| EE | 2014EE06RDNP001 | 99 400 399,57 | | 99 400 399,57 | | 99 400 399,57 | 99 412 908,03 | – 12 508,46 |
| ES | 2014ES06RDNP001 | 11 130 468,90 | | 11 130 468,90 | | 11 130 468,90 | 11 427 505,14 | – 297 036,24 |
| ES | 2014ES06RDRP001 | 133 362 972,15 | | 133 362 972,15 | | 133 362 972,15 | 133 362 895,71 | 76,44 |
| ES | 2014ES06RDRP002 | 54 019 842,33 | | 54 019 842,33 | | 54 019 842,33 | 54 021 889,24 | – 2 046,91 |
| ES | 2014ES06RDRP003 | 24 059 289,70 | | 24 059 289,70 | | 24 059 289,70 | 24 058 133,46 | 1 156,24 |
| ES | 2014ES06RDRP004 | 7 438 202,41 | | 7 438 202,41 | | 7 438 202,41 | 7 438 202,28 | 0,13 |
| ES | 2014ES06RDRP006 | 15 454 254,68 | | 15 454 254,68 | | 15 454 254,68 | 15 454 254,26 | 0,42 |
| ES | 2014ES06RDRP007 | 72 883 605,94 | | 72 883 605,94 | | 72 883 605,94 | 72 881 227,26 | 2 378,68 |
| ES | 2014ES06RDRP008 | 89 312 043,14 | | 89 312 043,14 | | 89 312 043,14 | 89 305 608,68 | 6 434,46 |
| ES | 2014ES06RDRP009 | 39 910 753,58 | | 39 910 753,58 | | 39 910 753,58 | 39 910 751,94 | 1,64 |
| ES | 2014ES06RDRP010 | 62 017 455,91 | | 62 017 455,91 | | 62 017 455,91 | 62 017 430,94 | 24,97 |
| ES | 2014ES06RDRP011 | 103 801 455,51 | | 103 801 455,51 | | 103 801 455,51 | 103 801 425,09 | 30,42 |
| ES | 2014ES06RDRP012 | 1 060 083,85 | | 1 060 083,85 | | 1 060 083,85 | 1 060 083,85 | 0,00 |
| ES | 2014ES06RDRP013 | 24 966 783,83 | | 24 966 783,83 | | 24 966 783,83 | 24 966 780,75 | 3,08 |
| ES | 2014ES06RDRP014 | 12 760 386,72 | | 12 760 386,72 | | 12 760 386,72 | 12 760 386,67 | 0,05 |
| ES | 2014ES06RDRP015 | 18 088 437,72 | | 18 088 437,72 | | 18 088 437,72 | 18 088 449,94 | – 12,22 |
| ES | 2014ES06RDRP016 | 8 991 760,03 | | 8 991 760,03 | | 8 991 760,03 | 8 991 757,28 | 2,75 |
| ES | 2014ES06RDRP017 | 13 777 646,10 | | 13 777 646,10 | | 13 777 646,10 | 13 777 644,71 | 1,39 |
| FI | 2014FI06RDRP001 | 315 496 116,90 | | 315 496 116,90 | | 315 496 116,90 | 315 496 174,40 | – 57,50 |
| FI | 2014FI06RDRP002 | 3 712 306,45 | | 3 712 306,45 | | 3 712 306,45 | 3 712 306,45 | 0,00 |
| FR | 2014FR06RDNP001 | 100 121 898,44 | | 100 121 898,44 | | 100 121 898,44 | 100 121 898,44 | 0,00 |
| FR | 2014FR06RDRN001 | 300 373,57 | | 300 373,57 | | 300 373,57 | 300 373,57 | 0,00 |
| FR | 2014FR06RDRP001 | 2 363 536,33 | | 2 363 536,33 | | 2 363 536,33 | 2 363 536,33 | 0,00 |
| FR | 2014FR06RDRP002 | 3 369 301,72 | | 3 369 301,72 | | 3 369 301,72 | 3 369 301,70 | 0,02 |
| FR | 2014FR06RDRP003 | 4 661 378,08 | | 4 661 378,08 | | 4 661 378,08 | 4 661 378,08 | 0,00 |
| FR | 2014FR06RDRP004 | 22 077 591,68 | | 22 077 591,68 | | 22 077 591,68 | 22 077 591,68 | 0,00 |
| FR | 2014FR06RDRP006 | 1 556 396,94 | | 1 556 396,94 | | 1 556 396,94 | 1 556 396,94 | 0,00 |
| FR | 2014FR06RDRP011 | 1 410 258,78 | | 1 410 258,78 | | 1 410 258,78 | 1 410 258,78 | 0,00 |
| FR | 2014FR06RDRP021 | 14 971 960,69 | | 14 971 960,69 | | 14 971 960,69 | 14 971 960,69 | 0,00 |
| FR | 2014FR06RDRP022 | 3 132 461,41 | | 3 132 461,41 | | 3 132 461,41 | 3 132 461,40 | 0,01 |
| FR | 2014FR06RDRP023 | 3 239 902,32 | | 3 239 902,32 | | 3 239 902,32 | 3 239 902,32 | 0,00 |
| FR | 2014FR06RDRP024 | 36 629 807,86 | | 36 629 807,86 | | 36 629 807,86 | 36 629 807,85 | 0,01 |
| FR | 2014FR06RDRP025 | 26 364 953,09 | | 26 364 953,09 | | 26 364 953,09 | 26 364 953,07 | 0,02 |
| FR | 2014FR06RDRP026 | 91 192 470,84 | | 91 192 470,84 | | 91 192 470,84 | 91 192 470,83 | 0,01 |
| FR | 2014FR06RDRP031 | 3 974 536,66 | | 3 974 536,66 | | 3 974 536,66 | 3 974 536,67 | – 0,01 |
| FR | 2014FR06RDRP041 | 36 233 518,95 | | 36 233 518,95 | | 36 233 518,95 | 36 233 518,94 | 0,01 |
| FR | 2014FR06RDRP042 | 7 728 741,09 | | 7 728 741,09 | | 7 728 741,09 | 7 728 741,09 | 0,00 |
| FR | 2014FR06RDRP043 | 82 691 430,20 | | 82 691 430,20 | | 82 691 430,20 | 82 691 430,20 | 0,00 |
| FR | 2014FR06RDRP052 | 21 113 755,92 | | 21 113 755,92 | | 21 113 755,92 | 21 113 755,89 | 0,03 |
| FR | 2014FR06RDRP053 | 14 629 279,53 | | 14 629 279,53 | | 14 629 279,53 | 14 629 279,52 | 0,01 |
| FR | 2014FR06RDRP054 | 40 044 044,76 | | 40 044 044,76 | | 40 044 044,76 | 40 044 044,78 | – 0,02 |
| FR | 2014FR06RDRP072 | 99 246 766,05 | | 99 246 766,05 | | 99 246 766,05 | 99 246 766,07 | – 0,02 |
| FR | 2014FR06RDRP073 | 299 144 894,30 | | 299 144 894,30 | | 299 144 894,30 | 299 144 894,32 | – 0,02 |
| FR | 2014FR06RDRP074 | 131 740 730,76 | | 131 740 730,76 | | 131 740 730,76 | 131 740 730,75 | 0,01 |
| FR | 2014FR06RDRP082 | 211 700 551,52 | | 211 700 551,52 | | 211 700 551,52 | 211 700 551,49 | 0,03 |
| FR | 2014FR06RDRP083 | 275 379 990,89 | | 275 379 990,89 | | 275 379 990,89 | 275 379 990,89 | 0,00 |
| FR | 2014FR06RDRP091 | 100 704 933,82 | | 100 704 933,82 | | 100 704 933,82 | 100 704 933,84 | – 0,02 |
| FR | 2014FR06RDRP093 | 93 815 042,46 | | 93 815 042,46 | | 93 815 042,46 | 93 815 042,46 | 0,00 |
| EL | 2014GR06RDNP001 | 704 894 686,51 | | 704 894 686,51 | | 704 894 686,51 | 704 894 534,74 | 151,77 |
| HR | 2014HR06RDNP001 | 149 952 582,49 | | 149 952 582,49 | | 149 952 582,49 | 150 169 700,88 | – 217 118,39 |
| HU | 2014HU06RDNP001 | 196 592 489,13 | | 196 592 489,13 | | 196 592 489,13 | 196 592 509,26 | – 20,13 |
| IE | 2014IE06RDNP001 | 254 483 447,08 | | 254 483 447,08 | | 254 483 447,08 | 254 477 770,89 | 5 676,19 |
| IT | 2014IT06RDNP001 | 40 564 508,43 | | 40 564 508,43 | | 40 564 508,43 | 40 564 552,40 | – 43,97 |
| IT | 2014IT06RDRN001 | 977,28 | | 977,28 | | 977,28 | 977,28 | 0,00 |
| IT | 2014IT06RDRP001 | 8 874 305,75 | | 8 874 305,75 | | 8 874 305,75 | 8 874 567,78 | – 262,03 |
| IT | 2014IT06RDRP002 | 23 788 928,02 | | 23 788 928,02 | | 23 788 928,02 | 23 788 927,94 | 0,08 |
| IT | 2014IT06RDRP003 | 46 200 832,29 | | 46 200 832,29 | | 46 200 832,29 | 46 200 788,50 | 43,79 |
| IT | 2014IT06RDRP004 | 2 806 426,92 | | 2 806 426,92 | | 2 806 426,92 | 2 806 697,30 | – 270,38 |
| IT | 2014IT06RDRP005 | 18 865 941,92 | | 18 865 941,92 | | 18 865 941,92 | 18 868 840,76 | – 2 898,84 |
| IT | 2014IT06RDRP006 | 1 534 285,21 | | 1 534 285,21 | | 1 534 285,21 | 1 534 667,84 | – 382,63 |
| IT | 2014IT06RDRP007 | 28 727 343,78 | | 28 727 343,78 | | 28 727 343,78 | 28 764 913,04 | – 37 569,26 |
| IT | 2014IT06RDRP008 | 15 287 214,93 | | 15 287 214,93 | | 15 287 214,93 | 15 287 416,95 | – 202,02 |
| IT | 2014IT06RDRP009 | 33 120 912,73 | | 33 120 912,73 | | 33 120 912,73 | 33 121 036,06 | – 123,33 |
| IT | 2014IT06RDRP010 | 45 484 848,30 | | 45 484 848,30 | | 45 484 848,30 | 45 484 862,45 | – 14,15 |
| IT | 2014IT06RDRP011 | 13 438 549,33 | | 13 438 549,33 | | 13 438 549,33 | 13 438 548,84 | 0,49 |
| IT | 2014IT06RDRP012 | 44 069 542,90 | | 44 069 542,90 | | 44 069 542,90 | 44 075 357,69 | – 5 814,79 |
| IT | 2014IT06RDRP013 | 3 098 089,21 | | 3 098 089,21 | | 3 098 089,21 | 3 098 146,33 | – 57,12 |
| IT | 2014IT06RDRP014 | 83 036 894,24 | | 83 036 894,24 | | 83 036 894,24 | 83 036 894,35 | – 0,11 |
| IT | 2014IT06RDRP015 | 6 701 799,96 | | 6 701 799,96 | | 6 701 799,96 | 6 702 178,75 | – 378,79 |
| IT | 2014IT06RDRP016 | 61 096 993,40 | | 61 096 993,40 | | 61 096 993,40 | 61 108 709,19 | – 11 715,79 |
| IT | 2014IT06RDRP017 | 19 528 912,41 | | 19 528 912,41 | | 19 528 912,41 | 19 528 912,90 | – 0,49 |
| IT | 2014IT06RDRP019 | 40 686 895,09 | | 40 686 895,09 | | 40 686 895,09 | 40 687 623,74 | – 728,65 |
| IT | 2014IT06RDRP020 | 46 987 331,20 | | 46 987 331,20 | | 46 987 331,20 | 46 988 100,86 | – 769,66 |
| IT | 2014IT06RDRP021 | 135 506 692,90 | | 135 506 692,90 | | 135 506 692,90 | 135 538 241,16 | – 31 548,26 |
| LT | 2014LT06RDNP001 | 253 974 528,53 | | 253 974 528,53 | | 253 974 528,53 | 253 974 582,76 | – 54,23 |
| LU | 2014LU06RDNP001 | 8 918 895,78 | | 8 918 895,78 | | 8 918 895,78 | 8 812 078,76 | 106 817,02 |
| LV | 2014LV06RDNP001 | 162 496 968,70 | | 162 496 968,70 | | 162 496 968,70 | 162 496 968,70 | 0,00 |
| MT | 2014MT06RDNP001 | 2 170 944,28 | | 2 170 944,28 | | 2 170 944,28 | 2 170 973,36 | – 29,08 |
| NL | 2014NL06RDNP001 | 57 608 890,90 | | 57 608 890,90 | | 57 608 890,90 | 57 608 528,55 | 362,35 |
| PL | 2014PL06RDNP001 | 573 603 683,32 | | 573 603 683,32 | | 573 603 683,32 | 573 605 136,61 | – 1 453,29 |
| PT | 2014PT06RDRP001 | 40 591 687,21 | | 40 591 687,21 | | 40 591 687,21 | 40 591 287,69 | 399,52 |
| PT | 2014PT06RDRP002 | 468 845 467,33 | | 468 845 467,33 | | 468 845 467,33 | 468 844 377,37 | 1 089,96 |
| PT | 2014PT06RDRP003 | 15 384 146,74 | | 15 384 146,74 | | 15 384 146,74 | 15 384 144,04 | 2,70 |
| RO | 2014RO06RDNP001 | 1 550 387 153,79 | – 7 674 875,25 | 1 542 712 278,54 | | 1 542 712 278,54 | 1 542 816 218,84 | – 103 940,30 |
| SE | 2014SE06RDNP001 | 104 275 242,46 | | 104 275 242,46 | | 104 275 242,46 | 104 276 388,48 | – 1 146,02 |
| SI | 2014SI06RDNP001 | 80 270 639,58 | | 80 270 639,58 | | 80 270 639,58 | 80 270 674,15 | – 34,57 |
| SK | 2014SK06RDNP001 | 167 863 129,03 | | 167 863 129,03 | | 167 863 129,03 | 167 863 195,69 | – 66,66 |
| UK | 2014UK06RDRP001 | 374 056 682,70 | | 374 056 682,70 | | 374 056 682,70 | 374 089 621,24 | – 32 938,54 |
| UK | 2014UK06RDRP002 | 16 450 919,98 | | 16 450 919,98 | | 16 450 919,98 | 16 450 370,55 | 549,43 |
| UK | 2014UK06RDRP003 | 88 991 847,54 | 43 923,38 | 89 035 770,92 | | 89 035 770,92 | 89 251 291,63 | – 215 520,71 |
| UK | 2014UK06RDRP004 | 62 590 710,66 | | 62 590 710,66 | | 62 590 710,66 | 62 590 711,40 | – 0,74 |

(EUR)

MS

CCI

Expenditure 2017

Corrections

Total

Non-reusable amounts

Accepted amount cleared for FY 2017

Interim payments reimbursed to the Member State for the financial year

Amount to be recovered from (–) of paid to (+) the Member State

i

ii

iii = i + ii

iv

v = iii – iv

vi

vii = v – vi

AT

2014AT06RDNP001

478 397 731,67

478 397 731,67

478 397 731,67

478 484 312,41

– 86 580,74

BE

2014BE06RDRP001

14 116 035,12

14 116 035,12

14 116 035,12

14 116 020,99

14,13

BE

2014BE06RDRP002

23 185 996,14

23 185 996,14

23 185 996,14

22 924 377,26

261 618,88

BG

2014BG06RDNP001

194 155 360,31

194 155 360,31

194 155 360,31

194 514 061,71

– 358 701,40

CY

2014CY06RDNP001

14 583 607,33

14 583 607,33

14 583 607,33

14 601 650,41

– 18 043,08

CZ

2014CZ06RDNP001

260 439 728,70

260 439 728,70

260 439 728,70

259 405 974,77

1 033 753,93

DE

2014DE06RDRN001

847 676,47

847 676,47

847 676,47

847 676,48

– 0,01

DE

2014DE06RDRP003

84 033 821,64

84 033 821,64

84 033 821,64

84 034 786,45

– 964,81

DE

2014DE06RDRP004

202 106 079,18

202 106 079,18

202 106 079,18

202 106 079,18

0,00

DE

2014DE06RDRP007

87 240 337,67

87 240 337,67

87 240 337,67

87 240 388,46

– 50,79

DE

2014DE06RDRP010

40 262 191,26

40 262 191,26

40 262 191,26

40 262 191,26

0,00

DE

2014DE06RDRP011

89 292 124,14

89 292 124,14

89 292 124,14

89 292 124,14

0,00

DE

2014DE06RDRP012

85 047 512,95

85 047 512,95

85 047 512,95

85 047 512,95

0,00

DE

2014DE06RDRP015

64 552 926,48

64 552 926,48

64 552 926,48

64 552 926,48

0,00

DE

2014DE06RDRP017

19 829 188,13

19 829 188,13

19 829 188,13

19 829 188,13

0,00

DE

2014DE06RDRP018

3 683 036,58

3 683 036,58

3 683 036,58

3 683 036,58

0,00

DE

2014DE06RDRP019

77 775 501,44

77 775 501,44

77 775 501,44

77 774 863,41

638,03

DE

2014DE06RDRP020

57 136 841,47

57 136 841,47

57 136 841,47

57 136 841,47

0,00

DE

2014DE06RDRP021

44 501 423,11

44 501 423,11

44 501 423,11

44 500 563,13

859,98

DE

2014DE06RDRP023

94 645 203,69

94 645 203,69

94 645 203,69

94 645 203,76

– 0,07

EE

2014EE06RDNP001

99 400 399,57

99 400 399,57

99 400 399,57

99 412 908,03

– 12 508,46

ES

2014ES06RDNP001

11 130 468,90

11 130 468,90

11 130 468,90

11 427 505,14

– 297 036,24

ES

2014ES06RDRP001

133 362 972,15

133 362 972,15

133 362 972,15

133 362 895,71

76,44

ES

2014ES06RDRP002

54 019 842,33

54 019 842,33

54 019 842,33

54 021 889,24

– 2 046,91

ES

2014ES06RDRP003

24 059 289,70

24 059 289,70

24 059 289,70

24 058 133,46

1 156,24

ES

2014ES06RDRP004

7 438 202,41

7 438 202,41

7 438 202,41

7 438 202,28

0,13

ES

2014ES06RDRP006

15 454 254,68

15 454 254,68

15 454 254,68

15 454 254,26

0,42

ES

2014ES06RDRP007

72 883 605,94

72 883 605,94

72 883 605,94

72 881 227,26

2 378,68

ES

2014ES06RDRP008

89 312 043,14

89 312 043,14

89 312 043,14

89 305 608,68

6 434,46

ES

2014ES06RDRP009

39 910 753,58

39 910 753,58

39 910 753,58

39 910 751,94

1,64

ES

2014ES06RDRP010

62 017 455,91

62 017 455,91

62 017 455,91

62 017 430,94

24,97

ES

2014ES06RDRP011

103 801 455,51

103 801 455,51

103 801 455,51

103 801 425,09

30,42

ES

2014ES06RDRP012

1 060 083,85

1 060 083,85

1 060 083,85

1 060 083,85

0,00

ES

2014ES06RDRP013

24 966 783,83

24 966 783,83

24 966 783,83

24 966 780,75

3,08

ES

2014ES06RDRP014

12 760 386,72

12 760 386,72

12 760 386,72

12 760 386,67

0,05

ES

2014ES06RDRP015

18 088 437,72

18 088 437,72

18 088 437,72

18 088 449,94

– 12,22

ES

2014ES06RDRP016

8 991 760,03

8 991 760,03

8 991 760,03

8 991 757,28

2,75

ES

2014ES06RDRP017

13 777 646,10

13 777 646,10

13 777 646,10

13 777 644,71

1,39

FI

2014FI06RDRP001

315 496 116,90

315 496 116,90

315 496 116,90

315 496 174,40

– 57,50

FI

2014FI06RDRP002

3 712 306,45

3 712 306,45

3 712 306,45

3 712 306,45

0,00

FR

2014FR06RDNP001

100 121 898,44

100 121 898,44

100 121 898,44

100 121 898,44

0,00

FR

2014FR06RDRN001

300 373,57

300 373,57

300 373,57

300 373,57

0,00

FR

2014FR06RDRP001

2 363 536,33

2 363 536,33

2 363 536,33

2 363 536,33

0,00

FR

2014FR06RDRP002

3 369 301,72

3 369 301,72

3 369 301,72

3 369 301,70

0,02

FR

2014FR06RDRP003

4 661 378,08

4 661 378,08

4 661 378,08

4 661 378,08

0,00

FR

2014FR06RDRP004

22 077 591,68

22 077 591,68

22 077 591,68

22 077 591,68

0,00

FR

2014FR06RDRP006

1 556 396,94

1 556 396,94

1 556 396,94

1 556 396,94

0,00

FR

2014FR06RDRP011

1 410 258,78

1 410 258,78

1 410 258,78

1 410 258,78

0,00

FR

2014FR06RDRP021

14 971 960,69

14 971 960,69

14 971 960,69

14 971 960,69

0,00

FR

2014FR06RDRP022

3 132 461,41

3 132 461,41

3 132 461,41

3 132 461,40

0,01

FR

2014FR06RDRP023

3 239 902,32

3 239 902,32

3 239 902,32

3 239 902,32

0,00

FR

2014FR06RDRP024

36 629 807,86

36 629 807,86

36 629 807,86

36 629 807,85

0,01

FR

2014FR06RDRP025

26 364 953,09

26 364 953,09

26 364 953,09

26 364 953,07

0,02

FR

2014FR06RDRP026

91 192 470,84

91 192 470,84

91 192 470,84

91 192 470,83

0,01

FR

2014FR06RDRP031

3 974 536,66

3 974 536,66

3 974 536,66

3 974 536,67

– 0,01

FR

2014FR06RDRP041

36 233 518,95

36 233 518,95

36 233 518,95

36 233 518,94

0,01

FR

2014FR06RDRP042

7 728 741,09

7 728 741,09

7 728 741,09

7 728 741,09

0,00

FR

2014FR06RDRP043

82 691 430,20

82 691 430,20

82 691 430,20

82 691 430,20

0,00

FR

2014FR06RDRP052

21 113 755,92

21 113 755,92

21 113 755,92

21 113 755,89

0,03

FR

2014FR06RDRP053

14 629 279,53

14 629 279,53

14 629 279,53

14 629 279,52

0,01

FR

2014FR06RDRP054

40 044 044,76

40 044 044,76

40 044 044,76

40 044 044,78

– 0,02

FR

2014FR06RDRP072

99 246 766,05

99 246 766,05

99 246 766,05

99 246 766,07

– 0,02

FR

2014FR06RDRP073

299 144 894,30

299 144 894,30

299 144 894,30

299 144 894,32

– 0,02

FR

2014FR06RDRP074

131 740 730,76

131 740 730,76

131 740 730,76

131 740 730,75

0,01

FR

2014FR06RDRP082

211 700 551,52

211 700 551,52

211 700 551,52

211 700 551,49

0,03

FR

2014FR06RDRP083

275 379 990,89

275 379 990,89

275 379 990,89

275 379 990,89

0,00

FR

2014FR06RDRP091

100 704 933,82

100 704 933,82

100 704 933,82

100 704 933,84

– 0,02

FR

2014FR06RDRP093

93 815 042,46

93 815 042,46

93 815 042,46

93 815 042,46

0,00

EL

2014GR06RDNP001

704 894 686,51

704 894 686,51

704 894 686,51

704 894 534,74

151,77

HR

2014HR06RDNP001

149 952 582,49

149 952 582,49

149 952 582,49

150 169 700,88

– 217 118,39

HU

2014HU06RDNP001

196 592 489,13

196 592 489,13

196 592 489,13

196 592 509,26

– 20,13

IE

2014IE06RDNP001

254 483 447,08

254 483 447,08

254 483 447,08

254 477 770,89

5 676,19

IT

2014IT06RDNP001

40 564 508,43

40 564 508,43

40 564 508,43

40 564 552,40

– 43,97

IT

2014IT06RDRN001

977,28

977,28

977,28

977,28

0,00

IT

2014IT06RDRP001

8 874 305,75

8 874 305,75

8 874 305,75

8 874 567,78

– 262,03

IT

2014IT06RDRP002

23 788 928,02

23 788 928,02

23 788 928,02

23 788 927,94

0,08

IT

2014IT06RDRP003

46 200 832,29

46 200 832,29

46 200 832,29

46 200 788,50

43,79

IT

2014IT06RDRP004

2 806 426,92

2 806 426,92

2 806 426,92

2 806 697,30

– 270,38

IT

2014IT06RDRP005

18 865 941,92

18 865 941,92

18 865 941,92

18 868 840,76

– 2 898,84

IT

2014IT06RDRP006

1 534 285,21

1 534 285,21

1 534 285,21

1 534 667,84

– 382,63

IT

2014IT06RDRP007

28 727 343,78

28 727 343,78

28 727 343,78

28 764 913,04

– 37 569,26

IT

2014IT06RDRP008

15 287 214,93

15 287 214,93

15 287 214,93

15 287 416,95

– 202,02

IT

2014IT06RDRP009

33 120 912,73

33 120 912,73

33 120 912,73

33 121 036,06

– 123,33

IT

2014IT06RDRP010

45 484 848,30

45 484 848,30

45 484 848,30

45 484 862,45

– 14,15

IT

2014IT06RDRP011

13 438 549,33

13 438 549,33

13 438 549,33

13 438 548,84

0,49

IT

2014IT06RDRP012

44 069 542,90

44 069 542,90

44 069 542,90

44 075 357,69

– 5 814,79

IT

2014IT06RDRP013

3 098 089,21

3 098 089,21

3 098 089,21

3 098 146,33

– 57,12

IT

2014IT06RDRP014

83 036 894,24

83 036 894,24

83 036 894,24

83 036 894,35

– 0,11

IT

2014IT06RDRP015

6 701 799,96

6 701 799,96

6 701 799,96

6 702 178,75

– 378,79

IT

2014IT06RDRP016

61 096 993,40

61 096 993,40

61 096 993,40

61 108 709,19

– 11 715,79

IT

2014IT06RDRP017

19 528 912,41

19 528 912,41

19 528 912,41

19 528 912,90

– 0,49

IT

2014IT06RDRP019

40 686 895,09

40 686 895,09

40 686 895,09

40 687 623,74

– 728,65

IT

2014IT06RDRP020

46 987 331,20

46 987 331,20

46 987 331,20

46 988 100,86

– 769,66

IT

2014IT06RDRP021

135 506 692,90

135 506 692,90

135 506 692,90

135 538 241,16

– 31 548,26

LT

2014LT06RDNP001

253 974 528,53

253 974 528,53

253 974 528,53

253 974 582,76

– 54,23

LU

2014LU06RDNP001

8 918 895,78

8 918 895,78

8 918 895,78

8 812 078,76

106 817,02

LV

2014LV06RDNP001

162 496 968,70

162 496 968,70

162 496 968,70

162 496 968,70

0,00

MT

2014MT06RDNP001

2 170 944,28

2 170 944,28

2 170 944,28

2 170 973,36

– 29,08

NL

2014NL06RDNP001

57 608 890,90

57 608 890,90

57 608 890,90

57 608 528,55

362,35

PL

2014PL06RDNP001

573 603 683,32

573 603 683,32

573 603 683,32

573 605 136,61

– 1 453,29

PT

2014PT06RDRP001

40 591 687,21

40 591 687,21

40 591 687,21

40 591 287,69

399,52

PT

2014PT06RDRP002

468 845 467,33

468 845 467,33

468 845 467,33

468 844 377,37

1 089,96

PT

2014PT06RDRP003

15 384 146,74

15 384 146,74

15 384 146,74

15 384 144,04

2,70

RO

2014RO06RDNP001

1 550 387 153,79

– 7 674 875,25

1 542 712 278,54

1 542 712 278,54

1 542 816 218,84

– 103 940,30

SE

2014SE06RDNP001

104 275 242,46

104 275 242,46

104 275 242,46

104 276 388,48

– 1 146,02

SI

2014SI06RDNP001

80 270 639,58

80 270 639,58

80 270 639,58

80 270 674,15

– 34,57

SK

2014SK06RDNP001

167 863 129,03

167 863 129,03

167 863 129,03

167 863 195,69

– 66,66

UK

2014UK06RDRP001

374 056 682,70

374 056 682,70

374 056 682,70

374 089 621,24

– 32 938,54

UK

2014UK06RDRP002

16 450 919,98

16 450 919,98

16 450 919,98

16 450 370,55

549,43

UK

2014UK06RDRP003

88 991 847,54

43 923,38

89 035 770,92

89 035 770,92

89 251 291,63

– 215 520,71

UK

2014UK06RDRP004

62 590 710,66

62 590 710,66

62 590 710,66

62 590 711,40

– 0,74

---

ANNEX II

CLEARANCE OF THE PAYING AGENCIES' ACCOUNTS

FINANCIAL YEAR 2017 - EAFRD

List of the Paying Agencies and programmes for which the accounts are disjoined and are subject of a later clearance decision

| Member State | Paying Agency | Programme |
| --- | --- | --- |
| Denmark | Danish Agricultural Agency | 2014DK06RDNP001 |
| France | Office du Développement Agricole et Rural de Corse | 2014FR06RDRP094 |
| Germany | EU-Zahlstelle der Freien und Hansestadt Hamburg | |
| Italy | Agenzia della regione Calabria per le Erogazioni in Agricoltura | 2014IT06RDRP018 |
| Spain | Islas Canarias | 2014ES06RDRP005 |

Member State

Paying Agency

Programme

Denmark

Danish Agricultural Agency

2014DK06RDNP001

France

Office du Développement Agricole et Rural de Corse

2014FR06RDRP094

Germany

EU-Zahlstelle der Freien und Hansestadt Hamburg

Italy

Agenzia della regione Calabria per le Erogazioni in Agricoltura

2014IT06RDRP018

Spain

Islas Canarias

2014ES06RDRP005

---

ANNEX III

CLEARANCE OF THE PAYING AGENCIES' ACCOUNTS

FINANCIAL YEAR 2017 - EAFRD

Corrections according to Article 54(2) of Regulation (EU) 1306/2013
   (*1)

| | | Corrections Related to the 2014-2020 Programming Period | Corrections Related to the 2007-2013 Programming Period |
| --- | --- | --- | --- |
| Member State | Currency | (National currency) | (EUR) | (National currency) | (EUR) |
| AT | EUR | — | — | — | — |
| BE | EUR | — | — | — | 299,66 |
| BG | BGN | — | — | 51 922,70 | — |
| CY | EUR | — | — | — | — |
| CZ | CZK | — | — | 486 389,94 | — |
| DE (*1) | EUR | — | — | — | 48 081,10 |
| DK (*1) | DKK | — | — | — | — |
| EE | EUR | — | — | — | 527 298,68 |
| ES (*1) | EUR | — | — | — | 364 234,54 |
| FI | EUR | — | — | — | 38 756,20 |
| FR (*1) | EUR | — | — | — | 1 835 310,17 |
| UK | GBP | — | — | 41 093,19 | — |
| EL | EUR | — | — | — | 473 028,15 |
| HR | HRK | — | — | — | — |
| HU | HUF | — | — | 428 063 977,00 | — |
| IE | EUR | — | — | — | 95 744,91 |
| IT (*1) | EUR | — | — | — | 334 023,46 |
| LT | EUR | — | — | — | 2 332,84 |
| LU | EUR | — | — | — | — |
| LV | EUR | — | — | — | 5 032,42 |
| MT | EUR | — | — | — | 1 129,66 |
| NL | EUR | — | — | — | 367,70 |
| PL | PLN | — | — | 2 193 312,18 | — |
| PT | EUR | — | — | — | 68 876,07 |
| RO | RON | — | — | 178 860,25 | — |
| SE | SEK | — | — | 321 280,06 | — |
| SI | EUR | — | — | — | 430,13 |
| SK | EUR | — | — | — | 385 822,30 |

Corrections Related to the 2014-2020 Programming Period

Corrections Related to the 2007-2013 Programming Period

Member State

Currency

(National currency)

(EUR)

(National currency)

(EUR)

AT

EUR

—

—

—

—

BE

EUR

—

—

—

299,66

BG

BGN

—

—

51 922,70

—

CY

EUR

—

—

—

—

CZ

CZK

—

—

486 389,94

—

DE (*1)

EUR

—

—

—

48 081,10

DK (*1)

DKK

—

—

—

—

EE

EUR

—

—

—

527 298,68

ES (*1)

EUR

—

—

—

364 234,54

FI

EUR

—

—

—

38 756,20

FR (*1)

EUR

—

—

—

1 835 310,17

UK

GBP

—

—

41 093,19

—

EL

EUR

—

—

—

473 028,15

HR

HRK

—

—

—

—

HU

HUF

—

—

428 063 977,00

—

IE

EUR

—

—

—

95 744,91

IT (*1)

EUR

—

—

—

334 023,46

LT

EUR

—

—

—

2 332,84

LU

EUR

—

—

—

—

LV

EUR

—

—

—

5 032,42

MT

EUR

—

—

—

1 129,66

NL

EUR

—

—

—

367,70

PL

PLN

—

—

2 193 312,18

—

PT

EUR

—

—

—

68 876,07

RO

RON

—

—

178 860,25

—

SE

SEK

—

—

321 280,06

—

SI

EUR

—

—

—

430,13

SK

EUR

—

—

—

385 822,30

---

(*1)  In respect of the paying agencies for which the accounts are disjoined, the reduction as laid down in Article 54(2) is to be applied once the accounts are proposed for clearance.

---

| 1.6.2018 | EN | Official Journal of the European Union | L 136/21 |
| --- | --- | --- | --- |

1.6.2018

EN

Official Journal of the European Union

L 136/21

---

COMMISSION IMPLEMENTING DECISION (EU) 2018/794

of 28 May 2018

on the clearance of the accounts of the paying agencies of Member States concerning expenditure financed by the European Agricultural Guarantee Fund (EAGF) for financial year 2017

(notified under document C(2018) 3194)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1306/2013 of the European Parliament and of the Council of 17 December 2013 on the financing, management and monitoring of the common agricultural policy and repealing Council Regulations (EEC) No 352/78, (EC) No 165/94, (EC) No 2799/98, (EC) No 814/2000, (EC) No 1290/2005 and (EC) No 485/2008 (1), and in particular Article 51 thereof,

After consulting the Committee on the Agricultural Funds,

Whereas:

| (1) | Pursuant to Article 51 of Regulation (EU) No 1306/2013, the Commission, on the basis of the annual accounts submitted by the Member States, accompanied by the information required for the clearance of accounts and an audit opinion regarding the completeness, accuracy and veracity of the accounts and the reports established by the certification bodies, has to clear the accounts of the paying agencies referred to in Article 7 of that Regulation. |
| --- | --- |

(1)

Pursuant to Article 51 of Regulation (EU) No 1306/2013, the Commission, on the basis of the annual accounts submitted by the Member States, accompanied by the information required for the clearance of accounts and an audit opinion regarding the completeness, accuracy and veracity of the accounts and the reports established by the certification bodies, has to clear the accounts of the paying agencies referred to in Article 7 of that Regulation.

| (2) | In accordance with Article 39 of Regulation (EU) No 1306/2013 the agricultural financial year begins on 16 October of year N – 1 and ends on 15 October of year N. When clearing the accounts for financial year 2017, account should be taken of expenditure incurred by the Member States between 16 October 2016 and 15 October 2017, as provided for in Article 11(1) of Commission Implementing Regulation (EU) No 908/2014 (2). |
| --- | --- |

(2)

In accordance with Article 39 of Regulation (EU) No 1306/2013 the agricultural financial year begins on 16 October of year N – 1 and ends on 15 October of year N. When clearing the accounts for financial year 2017, account should be taken of expenditure incurred by the Member States between 16 October 2016 and 15 October 2017, as provided for in Article 11(1) of Commission Implementing Regulation (EU) No 908/2014 (2).

| (3) | The first subparagraph of Article 33(2) of Implementing Regulation (EU) No 908/2014 provides that the amounts that are recoverable from, or payable to, each Member State, in accordance with the accounts clearance decision referred to in Article 33(1) of that Regulation, are to be determined by deducting the monthly payments for the financial year in question, i.e. 2017, from expenditure recognised for that year in accordance with Article 33(1). The Commission is to deduct that amount from or add it to the monthly payment relating to the expenditure effected in the second month following the clearance of accounts decision. |
| --- | --- |

(3)

The first subparagraph of Article 33(2) of Implementing Regulation (EU) No 908/2014 provides that the amounts that are recoverable from, or payable to, each Member State, in accordance with the accounts clearance decision referred to in Article 33(1) of that Regulation, are to be determined by deducting the monthly payments for the financial year in question, i.e. 2017, from expenditure recognised for that year in accordance with Article 33(1). The Commission is to deduct that amount from or add it to the monthly payment relating to the expenditure effected in the second month following the clearance of accounts decision.

| (4) | The Commission has checked the information submitted by the Member States and has communicated the results of its checks to the Member States before 30 April 2018, along with the necessary amendments. |
| --- | --- |

(4)

The Commission has checked the information submitted by the Member States and has communicated the results of its checks to the Member States before 30 April 2018, along with the necessary amendments.

| (5) | For certain paying agencies, the annual accounts and the accompanying documents permit the Commission to take a decision on the completeness, accuracy and veracity of the annual accounts submitted. |
| --- | --- |

(5)

For certain paying agencies, the annual accounts and the accompanying documents permit the Commission to take a decision on the completeness, accuracy and veracity of the annual accounts submitted.

| (6) | The information submitted by certain other paying agencies requires additional inquiries and their accounts cannot therefore be cleared in this Decision. |
| --- | --- |

(6)

The information submitted by certain other paying agencies requires additional inquiries and their accounts cannot therefore be cleared in this Decision.

| (7) | In accordance with Article 5(5) of Commission Delegated Regulation (EU) No 907/2014 (3), any overrun of deadlines during August, September and October is to be taken into account in the clearance of accounts decision. Some of the expenditure declared by certain Member States during these months in 2017 was effected after the applicable deadlines. This Decision should therefore fix the relevant reductions. |
| --- | --- |

(7)

In accordance with Article 5(5) of Commission Delegated Regulation (EU) No 907/2014 (3), any overrun of deadlines during August, September and October is to be taken into account in the clearance of accounts decision. Some of the expenditure declared by certain Member States during these months in 2017 was effected after the applicable deadlines. This Decision should therefore fix the relevant reductions.

| (8) | Pursuant to Article 41 of Regulation (EU) No 1306/2013, the Commission has already reduced or suspended a number of monthly payments for financial year 2017 due to failure to comply with financial ceilings or payment deadlines, or due to control system deficiencies. In adopting this Decision, the Commission should take into account the amounts reduced or suspended in order to avoid making all inappropriate, or untimely, payments or reimbursing amounts which could later be subject to financial correction. The amounts in question may be further examined, where appropriate, under conformity clearance proceedings pursuant to Article 52 of Regulation (EU) No 1306/2013. |
| --- | --- |

(8)

Pursuant to Article 41 of Regulation (EU) No 1306/2013, the Commission has already reduced or suspended a number of monthly payments for financial year 2017 due to failure to comply with financial ceilings or payment deadlines, or due to control system deficiencies. In adopting this Decision, the Commission should take into account the amounts reduced or suspended in order to avoid making all inappropriate, or untimely, payments or reimbursing amounts which could later be subject to financial correction. The amounts in question may be further examined, where appropriate, under conformity clearance proceedings pursuant to Article 52 of Regulation (EU) No 1306/2013.

| (9) | Pursuant to Article 54(2) of Regulation (EU) No 1306/2013, 50 % of the financial consequences of non-recovery of irregularities should be borne by the Member State concerned, if recovery has not taken place within four years from the date of the recovery request, or within eight years where the recovery is taken before the national courts. Article 54(4) of Regulation (EU) No 1306/2013 requires Member States to attach to the annual accounts that they have to submit to the Commission pursuant to Article 29 of Implementing Regulation (EU) No 908/2014 a certified table reflecting the amounts to be borne by them under Article 54(2) of Regulation (EU) No 1306/2013. Rules on the application of the Member States' obligation to report the amounts to be recovered are laid down in Implementing Regulation (EU) No 908/2014. Annex II to Implementing Regulation (EU) No 908/2014 sets out the model of the table that Member States have to use to provide information about amounts to be recovered. On the basis of the tables completed by the Member States, the Commission should decide on the financial consequences of non-recovery of irregularities older than four or eight years respectively. |
| --- | --- |

(9)

Pursuant to Article 54(2) of Regulation (EU) No 1306/2013, 50 % of the financial consequences of non-recovery of irregularities should be borne by the Member State concerned, if recovery has not taken place within four years from the date of the recovery request, or within eight years where the recovery is taken before the national courts. Article 54(4) of Regulation (EU) No 1306/2013 requires Member States to attach to the annual accounts that they have to submit to the Commission pursuant to Article 29 of Implementing Regulation (EU) No 908/2014 a certified table reflecting the amounts to be borne by them under Article 54(2) of Regulation (EU) No 1306/2013. Rules on the application of the Member States' obligation to report the amounts to be recovered are laid down in Implementing Regulation (EU) No 908/2014. Annex II to Implementing Regulation (EU) No 908/2014 sets out the model of the table that Member States have to use to provide information about amounts to be recovered. On the basis of the tables completed by the Member States, the Commission should decide on the financial consequences of non-recovery of irregularities older than four or eight years respectively.

| (10) | Pursuant to Article 54(3) of Regulation (EU) No 1306/2013, on duly justified grounds, Member States may decide not to pursue recovery. Such a decision may be taken only if the costs already, and likely to be, incurred total more than the amount to be recovered or if the recovery proves impossible owing to the insolvency, recorded and recognised under national law, of the debtor or the persons legally responsible for the irregularity. If the decision has been taken within four years of the primary administrative or judicial finding or within eight years where the recovery is taken to the national courts, 100 % of the financial consequences of the non-recovery should be borne by the Union budget. The amounts for which the Member State decided not to pursue recovery and the grounds for the decision are shown in the summary report referred to in Article 54(4) in conjunction with point (c)(iv) of Article 102(1) of Regulation (EU) No 1306/2013. Therefore, such amounts should not be charged to the Member States concerned and are consequently borne by the Union budget. |
| --- | --- |

(10)

Pursuant to Article 54(3) of Regulation (EU) No 1306/2013, on duly justified grounds, Member States may decide not to pursue recovery. Such a decision may be taken only if the costs already, and likely to be, incurred total more than the amount to be recovered or if the recovery proves impossible owing to the insolvency, recorded and recognised under national law, of the debtor or the persons legally responsible for the irregularity. If the decision has been taken within four years of the primary administrative or judicial finding or within eight years where the recovery is taken to the national courts, 100 % of the financial consequences of the non-recovery should be borne by the Union budget. The amounts for which the Member State decided not to pursue recovery and the grounds for the decision are shown in the summary report referred to in Article 54(4) in conjunction with point (c)(iv) of Article 102(1) of Regulation (EU) No 1306/2013. Therefore, such amounts should not be charged to the Member States concerned and are consequently borne by the Union budget.

| (11) | Reductions according to Article 54(2) of Regulation (EU) No 1306/2013 presented in Annex I (column e) relate to the European Agricultural Guarantee Fund (EAGF). The amounts to be charged to the Member States, as a result of the application of Article 54(2) of Regulation (EU) No 1306/2013 in relation to the Temporary Rural Development Instrument (TRDI) funded by the European Agricultural Guidance and Guarantee Fund (EAGGF) (4) are presented in Annex III. |
| --- | --- |

(11)

Reductions according to Article 54(2) of Regulation (EU) No 1306/2013 presented in Annex I (column e) relate to the European Agricultural Guarantee Fund (EAGF). The amounts to be charged to the Member States, as a result of the application of Article 54(2) of Regulation (EU) No 1306/2013 in relation to the Temporary Rural Development Instrument (TRDI) funded by the European Agricultural Guidance and Guarantee Fund (EAGGF) (4) are presented in Annex III.

| (12) | In accordance with Article 51 of Regulation (EU) No 1306/2013, this Decision is without prejudice to the decisions the Commission may take subsequently to exclude from Union financing expenditure not effected in accordance with Union rules, |
| --- | --- |

(12)

In accordance with Article 51 of Regulation (EU) No 1306/2013, this Decision is without prejudice to the decisions the Commission may take subsequently to exclude from Union financing expenditure not effected in accordance with Union rules,

HAS ADOPTED THIS DECISION:

Article 1

With the exception of the paying agencies referred to in Article 2, the accounts of the Member States' paying agencies concerning expenditure financed by the European Agricultural Guarantee Fund (EAGF) in respect of financial year 2017, are hereby cleared.

The amounts recoverable from, or payable to, each Member State pursuant to this Decision, including those resulting from the application of Article 54(2) of Regulation (EU) No 1306/2013, are set out in Annexes I and III to this Decision.

Article 2

For financial year 2017, the accounts of the Member States' paying agencies in respect of expenditure financed by the EAGF, as set out in Annex II, are not covered by this Decision and shall be the subject of a future clearance of accounts decision.

Article 3

This Decision is without prejudice to future conformity clearance decisions that the Commission may take pursuant to Article 52 of Regulation (EU) No 1306/2013 to exclude from Union financing expenditure not effected in accordance with Union rules.

Article 4

This Decision is addressed to the Member States.

Done at Brussels, 28 May 2018.

For the Commission

Phil HOGAN

Member of the Commission

---

(1)  
  OJ L 347, 20.12.2013, p. 549.

1

(2)  Commission Implementing Regulation (EU) No 908/2014 of 6 August 2014 laying down rules for the application of Regulation (EU) No 1306/2013 of the European Parliament and of the Council with regard to paying agencies and other bodies, financial management, clearance of accounts, rules on checks, securities and transparency (OJ L 255, 28.8.2014, p. 59).

2

(3)  Commission Delegated Regulation (EU) No 907/2014 of 11 March 2014 supplementing Regulation (EU) No 1306/2013 of the European Parliament and of the Council with regard to paying agencies and other bodies, financial management, clearance of accounts, securities and use of euro (OJ L 255, 28.8.2014, p. 18).

3

(4)  Commission Regulation (EC) No 27/2004 of 5 January 2004 laying down transitional detailed rules for the application of Council Regulation (EC) No 1257/1999 as regards the financing by the EAGGF Guarantee Section of rural development measures in the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia (OJ L 5, 9.1.2004, p. 36).

4

---

ANNEX I

CLEARANCE OF THE PAYING AGENCIES' ACCOUNTS

FINANCIAL YEAR 2017

Amount to be recovered from or paid to the Member State

| MS | | 2017 — Expenditure / Assigned Revenue for the Paying Agencies for which the accounts are | Total a + b | Reductions and suspensions for the whole financial year (1) | Reductions according to Article 54(2) of Regulation (EU) 1306/2013 | Total including reductions and suspensions | Payments made to the Member State for the financial year | Amount to be recovered from (–) or paid to (+) the Member State (2) |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| cleared | disjoined |
| = expenditure / assigned revenue declared in the annual declaration | = total of the expenditure / assigned revenue in the monthly declarations |
| | | a | b | c = a + b | d | e | f = c + d + e | g | h = f – g |
| BE | EUR | 588 102 324,63 | 0,00 | 588 102 324,63 | 0,00 | – 991,56 | 588 101 333,07 | 588 546 187,63 | – 444 854,56 |
| BG | EUR | 797 281 214,01 | 0,00 | 797 281 214,01 | – 17 389,41 | 0,00 | 797 263 824,60 | 798 086 440,51 | – 822 615,91 |
| CZ | CZK | 0,00 | 0,00 | 0,00 | 0,00 | – 8 342,14 | – 8 342,14 | 0,00 | – 8 342,14 |
| CZ | EUR | 854 448 923,01 | 0,00 | 854 448 923,01 | 0,00 | 0,00 | 854 448 923,01 | 854 448 923,20 | – 0,19 |
| DK | DKK | 0,00 | 0,00 | 0,00 | 0,00 | – 164 574,66 | – 164 574,66 | 0,00 | – 164 574,66 |
| DK | EUR | 858 708 631,07 | 0,00 | 858 708 631,07 | 0,00 | 0,00 | 858 708 631,07 | 858 670 732,41 | 37 898,66 |
| DE | EUR | 5 030 903 943,84 | 0,00 | 5 030 903 943,84 | – 6 977,89 | – 45 644,72 | 5 030 851 321,24 | 5 027 999 451,51 | 2 851 869,72 |
| EE | EUR | 124 071 973,61 | 0,00 | 124 071 973,61 | 0,00 | – 16 983,75 | 124 054 989,86 | 123 977 546,02 | 77 443,84 |
| IE | EUR | 1 229 287 920,82 | 0,00 | 1 229 287 920,82 | – 95 679,67 | – 43 841,63 | 1 229 148 399,52 | 1 228 321 811,74 | 826 587,78 |
| EL | EUR | 2 074 885 739,79 | 0,00 | 2 074 885 739,79 | – 20 843,71 | – 1 821 898,16 | 2 073 042 997,92 | 2 074 864 896,08 | – 1 821 898,16 |
| ES | EUR | 5 436 124 554,19 | 2 768 594,78 | 5 438 893 148,97 | – 2 239 204,13 | – 2 159 384,45 | 5 434 494 560,39 | 5 437 757 758,27 | – 3 263 197,88 |
| FR | EUR | 7 177 885 922,21 | 310 949 997,08 | 7 488 835 919,29 | – 184 123 288,02 | – 91 535,53 | 7 304 621 095,74 | 7 308 565 960,41 | – 3 944 864,67 |
| HR | EUR | 208 140 268,86 | 0,00 | 208 140 268,86 | – 84 515,74 | 0,00 | 208 055 753,12 | 208 189 461,36 | – 133 708,24 |
| IT | EUR | 4 310 772 062,39 | 0,00 | 4 310 772 062,39 | – 93 059 323,84 | – 1 812 362,90 | 4 215 900 375,65 | 4 249 111 348,36 | – 33 210 972,71 |
| CY | EUR | 55 777 706,48 | 0,00 | 55 777 706,48 | – 35 861,66 | 0,00 | 55 741 844,82 | 55 730 155,42 | 11 689,40 |
| LV | EUR | 217 990 354,60 | 0,00 | 217 990 354,60 | – 181,15 | – 6 247,62 | 217 983 925,83 | 217 993 173,12 | – 9 247,29 |
| LT | EUR | 443 325 522,51 | 0,00 | 443 325 522,51 | – 71 548,65 | – 374,27 | 443 253 599,59 | 443 272 271,92 | – 18 672,33 |
| LU | EUR | 34 473 355,85 | 0,00 | 34 473 355,85 | 0,00 | 0,00 | 34 473 355,85 | 34 401 229,19 | 72 126,66 |
| HU | HUF | 0,00 | 0,00 | 0,00 | 0,00 | – 68 059 521,50 | – 68 059 521,50 | 0,00 | – 68 059 521,50 |
| HU | EUR | 1 288 054 472,53 | 0,00 | 1 288 054 472,53 | – 4 569 620,93 | 0,00 | 1 283 484 851,60 | 1 284 228 855,44 | – 744 003,84 |
| MT | EUR | 0,00 | 5 317 298,97 | 5 317 298,97 | 0,00 | 0,00 | 5 317 298,97 | 5 317 298,97 | 0,00 |
| NL | EUR | 815 897 786,62 | 0,00 | 815 897 786,62 | – 422 705,99 | 0,00 | 815 475 080,63 | 815 494 995,16 | – 19 914,53 |
| AT | EUR | 706 529 712,22 | 0,00 | 706 529 712,22 | – 264 876,95 | 0,00 | 706 264 835,27 | 706 343 282,70 | – 78 447,43 |
| PL | PLN | 0,00 | 0,00 | 0,00 | 0,00 | – 885 655,91 | – 885 655,91 | 0,00 | – 885 655,91 |
| PL | EUR | 3 409 425 215,53 | 0,00 | 3 409 425 215,53 | – 3 007 191,14 | 0,00 | 3 406 418 024,39 | 3 406 561 289,51 | – 143 265,12 |
| PT | EUR | 705 330 241,25 | 0,00 | 705 330 241,25 | – 607 631,63 | – 1 086 013,11 | 703 636 596,51 | 704 169 188,62 | – 532 592,11 |
| RO | RON | 0,00 | 0,00 | 0,00 | 0,00 | – 491 230,99 | – 491 230,99 | 0,00 | – 491 230,99 |
| RO | EUR | 1 775 087 767,15 | 0,00 | 1 775 087 767,15 | – 15 068 445,66 | 0,00 | 1 760 019 321,49 | 1 772 508 497,61 | – 12 489 176,12 |
| SI | EUR | 143 152 666,80 | 0,00 | 143 152 666,80 | 0,00 | 0,00 | 143 152 666,80 | 143 152 639,38 | 27,42 |
| SK | EUR | 438 421 061,90 | 0,00 | 438 421 061,90 | – 4 578,15 | – 33 438,11 | 438 383 045,64 | 438 416 483,75 | – 33 438,11 |
| FI | EUR | 537 087 368,44 | 0,00 | 537 087 368,44 | – 2 999,21 | – 51 789,44 | 537 032 579,79 | 537 056 724,90 | – 24 145,11 |
| SE | SEK | 0,00 | 0,00 | 0,00 | 0,00 | – 393 612,02 | – 393 612,02 | 0,00 | – 393 612,02 |
| SE | EUR | 707 756 620,41 | 0,00 | 707 756 620,41 | – 4 058 311,47 | 0,00 | 703 698 308,94 | 703 708 425,10 | – 10 116,16 |
| UK | GBP | 0,00 | 0,00 | 0,00 | 0,00 | – 64 111,45 | – 64 111,45 | 0,00 | – 64 111,45 |
| UK | EUR | 3 151 920 238,93 | 0,00 | 3 151 920 238,93 | – 29 423 486,72 | 0,00 | 3 122 496 752,21 | 3 127 019 638,34 | – 4 522 886,13 |

MS

2017 — Expenditure / Assigned Revenue for the Paying Agencies for which the accounts are

Total a + b

Reductions and suspensions for the whole financial year (1)

Reductions according to Article 54(2) of Regulation (EU) 1306/2013

Total including reductions and suspensions

Payments made to the Member State for the financial year

Amount to be recovered from (–) or paid to (+) the Member State (2)

cleared

disjoined

= expenditure / assigned revenue declared in the annual declaration

= total of the expenditure / assigned revenue in the monthly declarations

a

b

c = a + b

d

e

f = c + d + e

g

h = f – g

BE

EUR

588 102 324,63

0,00

588 102 324,63

0,00

– 991,56

588 101 333,07

588 546 187,63

– 444 854,56

BG

EUR

797 281 214,01

0,00

797 281 214,01

– 17 389,41

0,00

797 263 824,60

798 086 440,51

– 822 615,91

CZ

CZK

0,00

0,00

0,00

0,00

– 8 342,14

– 8 342,14

0,00

– 8 342,14

CZ

EUR

854 448 923,01

0,00

854 448 923,01

0,00

0,00

854 448 923,01

854 448 923,20

– 0,19

DK

DKK

0,00

0,00

0,00

0,00

– 164 574,66

– 164 574,66

0,00

– 164 574,66

DK

EUR

858 708 631,07

0,00

858 708 631,07

0,00

0,00

858 708 631,07

858 670 732,41

37 898,66

DE

EUR

5 030 903 943,84

0,00

5 030 903 943,84

– 6 977,89

– 45 644,72

5 030 851 321,24

5 027 999 451,51

2 851 869,72

EE

EUR

124 071 973,61

0,00

124 071 973,61

0,00

– 16 983,75

124 054 989,86

123 977 546,02

77 443,84

IE

EUR

1 229 287 920,82

0,00

1 229 287 920,82

– 95 679,67

– 43 841,63

1 229 148 399,52

1 228 321 811,74

826 587,78

EL

EUR

2 074 885 739,79

0,00

2 074 885 739,79

– 20 843,71

– 1 821 898,16

2 073 042 997,92

2 074 864 896,08

– 1 821 898,16

ES

EUR

5 436 124 554,19

2 768 594,78

5 438 893 148,97

– 2 239 204,13

– 2 159 384,45

5 434 494 560,39

5 437 757 758,27

– 3 263 197,88

FR

EUR

7 177 885 922,21

310 949 997,08

7 488 835 919,29

– 184 123 288,02

– 91 535,53

7 304 621 095,74

7 308 565 960,41

– 3 944 864,67

HR

EUR

208 140 268,86

0,00

208 140 268,86

– 84 515,74

0,00

208 055 753,12

208 189 461,36

– 133 708,24

IT

EUR

4 310 772 062,39

0,00

4 310 772 062,39

– 93 059 323,84

– 1 812 362,90

4 215 900 375,65

4 249 111 348,36

– 33 210 972,71

CY

EUR

55 777 706,48

0,00

55 777 706,48

– 35 861,66

0,00

55 741 844,82

55 730 155,42

11 689,40

LV

EUR

217 990 354,60

0,00

217 990 354,60

– 181,15

– 6 247,62

217 983 925,83

217 993 173,12

– 9 247,29

LT

EUR

443 325 522,51

0,00

443 325 522,51

– 71 548,65

– 374,27

443 253 599,59

443 272 271,92

– 18 672,33

LU

EUR

34 473 355,85

0,00

34 473 355,85

0,00

0,00

34 473 355,85

34 401 229,19

72 126,66

HU

HUF

0,00

0,00

0,00

0,00

– 68 059 521,50

– 68 059 521,50

0,00

– 68 059 521,50

HU

EUR

1 288 054 472,53

0,00

1 288 054 472,53

– 4 569 620,93

0,00

1 283 484 851,60

1 284 228 855,44

– 744 003,84

MT

EUR

0,00

5 317 298,97

5 317 298,97

0,00

0,00

5 317 298,97

5 317 298,97

0,00

NL

EUR

815 897 786,62

0,00

815 897 786,62

– 422 705,99

0,00

815 475 080,63

815 494 995,16

– 19 914,53

AT

EUR

706 529 712,22

0,00

706 529 712,22

– 264 876,95

0,00

706 264 835,27

706 343 282,70

– 78 447,43

PL

PLN

0,00

0,00

0,00

0,00

– 885 655,91

– 885 655,91

0,00

– 885 655,91

PL

EUR

3 409 425 215,53

0,00

3 409 425 215,53

– 3 007 191,14

0,00

3 406 418 024,39

3 406 561 289,51

– 143 265,12

PT

EUR

705 330 241,25

0,00

705 330 241,25

– 607 631,63

– 1 086 013,11

703 636 596,51

704 169 188,62

– 532 592,11

RO

RON

0,00

0,00

0,00

0,00

– 491 230,99

– 491 230,99

0,00

– 491 230,99

RO

EUR

1 775 087 767,15

0,00

1 775 087 767,15

– 15 068 445,66

0,00

1 760 019 321,49

1 772 508 497,61

– 12 489 176,12

SI

EUR

143 152 666,80

0,00

143 152 666,80

0,00

0,00

143 152 666,80

143 152 639,38

27,42

SK

EUR

438 421 061,90

0,00

438 421 061,90

– 4 578,15

– 33 438,11

438 383 045,64

438 416 483,75

– 33 438,11

FI

EUR

537 087 368,44

0,00

537 087 368,44

– 2 999,21

– 51 789,44

537 032 579,79

537 056 724,90

– 24 145,11

SE

SEK

0,00

0,00

0,00

0,00

– 393 612,02

– 393 612,02

0,00

– 393 612,02

SE

EUR

707 756 620,41

0,00

707 756 620,41

– 4 058 311,47

0,00

703 698 308,94

703 708 425,10

– 10 116,16

UK

GBP

0,00

0,00

0,00

0,00

– 64 111,45

– 64 111,45

0,00

– 64 111,45

UK

EUR

3 151 920 238,93

0,00

3 151 920 238,93

– 29 423 486,72

0,00

3 122 496 752,21

3 127 019 638,34

– 4 522 886,13

| MS | | Expenditure (3) | Assigned revenue (3) | Article 54(2) (= e) | Total (= h) |
| --- | --- | --- | --- | --- | --- |
| 05 07 01 06 | 6701 | 6702 |
| i | j | k | l = i + j + k |
| BE | EUR | 0,00 | – 443 863,00 | – 991,56 | – 444 854,56 |
| BG | EUR | 0,00 | – 822 615,91 | 0,00 | – 822 615,91 |
| CZ | CZK | 0,00 | 0,00 | – 8 342,14 | – 8 342,14 |
| CZ | EUR | 0,00 | – 0,19 | 0,00 | – 0,19 |
| DK | DKK | 0,00 | 0,00 | – 164 574,66 | – 164 574,66 |
| DK | EUR | 37 898,66 | 0,00 | 0,00 | 37 898,66 |
| DE | EUR | 2 897 514,44 | 0,00 | – 45 644,72 | 2 851 869,72 |
| EE | EUR | 94 427,59 | 0,00 | – 16 983,75 | 77 443,84 |
| IE | EUR | 870 429,41 | 0,00 | – 43 841,63 | 826 587,78 |
| EL | EUR | 0,00 | 0,00 | – 1 821 898,16 | – 1 821 898,16 |
| ES | EUR | 0,00 | – 1 103 813,43 | – 2 159 384,45 | – 3 263 197,88 |
| FR | EUR | 0,00 | – 3 853 329,14 | – 91 535,53 | – 3 944 864,67 |
| HR | EUR | 0,00 | – 133 708,24 | 0,00 | – 133 708,24 |
| IT | EUR | 0,00 | – 31 398 609,81 | – 1 812 362,90 | – 33 210 972,71 |
| CY | EUR | 11 689,40 | 0,00 | 0,00 | 11 689,40 |
| LV | EUR | 0,00 | – 2 999,67 | – 6 247,62 | – 9 247,29 |
| LT | EUR | 0,00 | – 18 298,06 | – 374,27 | – 18 672,33 |
| LU | EUR | 72 126,66 | 0,00 | 0,00 | 72 126,66 |
| HU | HUF | 0,00 | 0,00 | – 68 059 521,50 | – 68 059 521,50 |
| HU | EUR | 0,00 | – 744 003,84 | 0,00 | – 744 003,84 |
| MT | EUR | 0,00 | 0,00 | 0,00 | 0,00 |
| NL | EUR | 0,00 | – 19 914,53 | 0,00 | – 19 914,53 |
| AT | EUR | 0,00 | – 78 447,43 | 0,00 | – 78 447,43 |
| PL | PLN | 0,00 | 0,00 | – 885 655,91 | – 885 655,91 |
| PL | EUR | 0,00 | – 143 265,12 | 0,00 | – 143 265,12 |
| PT | EUR | 553 421,00 | 0,00 | – 1 086 013,11 | – 532 592,11 |
| RO | RON | 0,00 | 0,00 | – 491 230,99 | – 491 230,99 |
| RO | EUR | 0,00 | – 12 489 176,12 | 0,00 | – 12 489 176,12 |
| SI | EUR | 27,42 | 0,00 | 0,00 | 27,42 |
| SK | EUR | 0,00 | 0,00 | – 33 438,11 | – 33 438,11 |
| FI | EUR | 114 932,37 | – 87 288,04 | – 51 789,44 | – 24 145,11 |
| SE | SEK | 0,00 | 0,00 | – 393 612,02 | – 393 612,02 |
| SE | EUR | 0,00 | – 10 116,16 | 0,00 | – 10 116,16 |
| UK | GBP | 0,00 | 0,00 | – 64 111,45 | – 64 111,45 |
| UK | EUR | 0,00 | – 4 522 886,13 | 0,00 | – 4 522 886,13 |
| (1) | The reductions and suspensions are those taken into account in the payment system, to which are added in particular the corrections for the non respect of payment deadlines established in August, September and October 2017 and other reductions in the context of Article 41 of Regulation (EU) No 1306/2013. |

MS

Expenditure (3)

Assigned revenue (3)

Article 54(2) (= e)

Total (= h)

05 07 01 06

6701

6702

i

j

k

l = i + j + k

BE

EUR

0,00

– 443 863,00

– 991,56

– 444 854,56

BG

EUR

0,00

– 822 615,91

0,00

– 822 615,91

CZ

CZK

0,00

0,00

– 8 342,14

– 8 342,14

CZ

EUR

0,00

– 0,19

0,00

– 0,19

DK

DKK

0,00

0,00

– 164 574,66

– 164 574,66

DK

EUR

37 898,66

0,00

0,00

37 898,66

DE

EUR

2 897 514,44

0,00

– 45 644,72

2 851 869,72

EE

EUR

94 427,59

0,00

– 16 983,75

77 443,84

IE

EUR

870 429,41

0,00

– 43 841,63

826 587,78

EL

EUR

0,00

0,00

– 1 821 898,16

– 1 821 898,16

ES

EUR

0,00

– 1 103 813,43

– 2 159 384,45

– 3 263 197,88

FR

EUR

0,00

– 3 853 329,14

– 91 535,53

– 3 944 864,67

HR

EUR

0,00

– 133 708,24

0,00

– 133 708,24

IT

EUR

0,00

– 31 398 609,81

– 1 812 362,90

– 33 210 972,71

CY

EUR

11 689,40

0,00

0,00

11 689,40

LV

EUR

0,00

– 2 999,67

– 6 247,62

– 9 247,29

LT

EUR

0,00

– 18 298,06

– 374,27

– 18 672,33

LU

EUR

72 126,66

0,00

0,00

72 126,66

HU

HUF

0,00

0,00

– 68 059 521,50

– 68 059 521,50

HU

EUR

0,00

– 744 003,84

0,00

– 744 003,84

MT

EUR

0,00

0,00

0,00

0,00

NL

EUR

0,00

– 19 914,53

0,00

– 19 914,53

AT

EUR

0,00

– 78 447,43

0,00

– 78 447,43

PL

PLN

0,00

0,00

– 885 655,91

– 885 655,91

PL

EUR

0,00

– 143 265,12

0,00

– 143 265,12

PT

EUR

553 421,00

0,00

– 1 086 013,11

– 532 592,11

RO

RON

0,00

0,00

– 491 230,99

– 491 230,99

RO

EUR

0,00

– 12 489 176,12

0,00

– 12 489 176,12

SI

EUR

27,42

0,00

0,00

27,42

SK

EUR

0,00

0,00

– 33 438,11

– 33 438,11

FI

EUR

114 932,37

– 87 288,04

– 51 789,44

– 24 145,11

SE

SEK

0,00

0,00

– 393 612,02

– 393 612,02

SE

EUR

0,00

– 10 116,16

0,00

– 10 116,16

UK

GBP

0,00

0,00

– 64 111,45

– 64 111,45

UK

EUR

0,00

– 4 522 886,13

0,00

– 4 522 886,13

(1)

The reductions and suspensions are those taken into account in the payment system, to which are added in particular the corrections for the non respect of payment deadlines established in August, September and October 2017 and other reductions in the context of Article 41 of Regulation (EU) No 1306/2013.

| (2) | For the calculation of the amount to be recovered from or paid to the Member State the amount taken into account is, the total of the annual declaration for the expenditure cleared (column a) or, the total of the monthly declarations for the expenditure disjoined (column b).
  Applicable exchange rate: Article 11(1) 1st subparagraph, 2nd sentence of Delegated Regulation (EU) No 907/2014. |
| --- | --- |

(2)

For the calculation of the amount to be recovered from or paid to the Member State the amount taken into account is, the total of the annual declaration for the expenditure cleared (column a) or, the total of the monthly declarations for the expenditure disjoined (column b).

Applicable exchange rate: Article 11(1) 1st subparagraph, 2nd sentence of Delegated Regulation (EU) No 907/2014.

| NB: | Nomenclature 2018: 05 07 01 06 , 6701 , 6702 |
| --- | --- |

NB:

Nomenclature 2018: 05 07 01 06 , 6701 , 6702

---

(3)  BL 05 07 01 06 shall be split between the negative corrections which become assigned revenue in BL 67 01 and the positive ones in favour of MS which shall now be included on the expenditure side 05 07 01 06 as per Article 43 of R 1306/2013.

---

ANNEX II

CLEARANCE OF THE PAYING AGENCIES' ACCOUNTS

FINANCIAL YEAR 2017 — EAGF

List of the Paying Agencies for which the accounts are disjoined and are subject of a later clearance decision

| Member State | Paying Agency |
| --- | --- |
| France | FranceAgriMer |
| Germany | EU-Zahlstelle der Freien und Hansestadt Hamburg |
| Malta | Agriculture and Rural Payments Agency |
| Spain | Fondo Español de Garantía Agraria |

Member State

Paying Agency

France

FranceAgriMer

Germany

EU-Zahlstelle der Freien und Hansestadt Hamburg

Malta

Agriculture and Rural Payments Agency

Spain

Fondo Español de Garantía Agraria

---

ANNEX III

CLEARANCE OF THE PAYING AGENCIES' ACCOUNTS

FINANCIAL YEAR 2017 — EAGF

Corrections according to Article 54(2) of Regulation (EU) 1306/2013
   (*1)

| Member State | Currency | In National currency | In Euro |
| --- | --- | --- | --- |
| AT | EUR | | |
| BE | EUR | | |
| BG | BGN | | |
| CY | EUR | — | — |
| CZ | CZK | — | — |
| DE | EUR | | |
| DK | DKK | | |
| EE | EUR | — | — |
| ES | EUR | | |
| FI | EUR | | |
| FR | EUR | | |
| UK | GBP | | |
| EL | EUR | | |
| HR | HRK | | |
| HU | HUF | 9 350 125,00 | — |
| IE | EUR | | |
| IT | EUR | | |
| LT | EUR | — | 45 630,25 |
| LU | EUR | | |
| LV | EUR | — | 119 855,63 |
| MT | EUR | — | — |
| NL | EUR | | |
| PL | PLN | 641 474,86 | — |
| PT | EUR | | |
| RO | RON | | |
| SE | SEK | | |
| SI | EUR | — | — |
| SK | EUR | — | 481 101,41 |

Member State

Currency

In National currency

In Euro

AT

EUR

BE

EUR

BG

BGN

CY

EUR

—

—

CZ

CZK

—

—

DE

EUR

DK

DKK

EE

EUR

—

—

ES

EUR

FI

EUR

FR

EUR

UK

GBP

EL

EUR

HR

HRK

HU

HUF

9 350 125,00

—

IE

EUR

IT

EUR

LT

EUR

—

45 630,25

LU

EUR

LV

EUR

—

119 855,63

MT

EUR

—

—

NL

EUR

PL

PLN

641 474,86

—

PT

EUR

RO

RON

SE

SEK

SI

EUR

—

—

SK

EUR

—

481 101,41

---

(*1)  Only the corrections related to TRDI are communicated in this annex

---

| 1.6.2018 | EN | Official Journal of the European Union | L 136/31 |
| --- | --- | --- | --- |

1.6.2018

EN

Official Journal of the European Union

L 136/31

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EUROPEAN SECURITIES AND MARKETS AUTHORITY DECISION (EU) 2018/795

of 22 May 2018

to temporarily prohibit the marketing, distribution or sale of binary options to retail clients in the Union in accordance with Article 40 of Regulation (EU) No 600/2014 of the European Parliament and of the Council

THE EUROPEAN SECURITIES AND MARKETS AUTHORITY BOARD OF SUPERVISORS,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (1), and in particular Articles 9(5), 43(2) and 44(1) thereof,

Having regard to Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (2), and in particular Article 40 thereof,

Having regard to Commission Delegated Regulation (EU) 2017/567 of 18 May 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions (3), and in particular Article 19 thereof,

Whereas:

1.   INTRODUCTION

INTRODUCTION

| (1) | In recent years, the European Securities and Markets Authority (ESMA) and several national competent authorities (NCAs) have observed a rapid increase in the marketing, distribution or sale of binary options to retail clients across the Union. Binary options are inherently risky and complex products and are often traded speculatively. ESMA and NCAs have also observed that their offer to retail clients has been increasingly featured by aggressive marketing techniques as well as a lack of transparent information that do not allow retail clients to understand the risks underlying these products. ESMA and NCAs have expressed widespread concerns on the increasing number of retail clients trading in these products and losing their money. These concerns are also supported by the numerous complaints received from retail clients across the EU who have suffered significant detriment when trading binary options. |
| --- | --- |

(1)

In recent years, the European Securities and Markets Authority (ESMA) and several national competent authorities (NCAs) have observed a rapid increase in the marketing, distribution or sale of binary options to retail clients across the Union. Binary options are inherently risky and complex products and are often traded speculatively. ESMA and NCAs have also observed that their offer to retail clients has been increasingly featured by aggressive marketing techniques as well as a lack of transparent information that do not allow retail clients to understand the risks underlying these products. ESMA and NCAs have expressed widespread concerns on the increasing number of retail clients trading in these products and losing their money. These concerns are also supported by the numerous complaints received from retail clients across the EU who have suffered significant detriment when trading binary options.

| (2) | These significant investor protection concerns have led ESMA to take a number of non-binding actions. As of June 2015, ESMA has been coordinating the work of a Joint Group established to tackle issues related to a number of Cyprus-based providers offering binary options, contracts for differences (CFDs) and other speculative products to retail clients on a cross-border basis across the Union (4). Furthermore, since July 2015, ESMA has been coordinating a task force composed of ESMA and NCAs whose work aims at monitoring the offer of binary options and CFDs to the retail mass market as well as to foster uniform supervisory approaches in this area across the Union. ESMA has also promoted supervisory convergence in the Union in respect of the offer of binary options to retail clients through the issuance of an opinion (5) as well as a number of Questions and Answers (Q&As) (6) pursuant to Article 29 of Regulation (EU) No 1095/2010. Finally, ESMA has published warnings (7) in which it highlighted its concerns in respect of the risks posed by the uncontrolled offer of inter alia binary options to retail clients. |
| --- | --- |

(2)

These significant investor protection concerns have led ESMA to take a number of non-binding actions. As of June 2015, ESMA has been coordinating the work of a Joint Group established to tackle issues related to a number of Cyprus-based providers offering binary options, contracts for differences (CFDs) and other speculative products to retail clients on a cross-border basis across the Union (4). Furthermore, since July 2015, ESMA has been coordinating a task force composed of ESMA and NCAs whose work aims at monitoring the offer of binary options and CFDs to the retail mass market as well as to foster uniform supervisory approaches in this area across the Union. ESMA has also promoted supervisory convergence in the Union in respect of the offer of binary options to retail clients through the issuance of an opinion (5) as well as a number of Questions and Answers (Q&As) (6) pursuant to Article 29 of Regulation (EU) No 1095/2010. Finally, ESMA has published warnings (7) in which it highlighted its concerns in respect of the risks posed by the uncontrolled offer of inter alia binary options to retail clients.

4

5

6

7

| (3) | Although these actions had some positive effects (8), ESMA considers that the significant investor protection concerns persist. |
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(3)

Although these actions had some positive effects (8), ESMA considers that the significant investor protection concerns persist.

8

| (4) | On 18 January 2018, ESMA launched a call for evidence on its potential product intervention measures on the marketing, distribution or sale of binary options and CFDs to retail clients (the ‘call for evidence’) (9). The call for evidence was closed on 5 February 2018. ESMA received almost 18 500 (10) responses. Among those responses, 82 were from providers, trade organisations, stock exchanges and brokers involved in the binary options and/or CFD business, 10 were from consumer representatives and the remaining responses came from individuals. A vast majority of the responses from individuals were facilitated and channelled via binary option and/or CFD providers. The call for evidence disclosed a general concern from the first category of respondents and, in particular, product providers, that the proposed measure would adversely impact their business. A number of individuals also complained about the proposed measure and expressed their willingness to continue trading in binary options. |
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(4)

On 18 January 2018, ESMA launched a call for evidence on its potential product intervention measures on the marketing, distribution or sale of binary options and CFDs to retail clients (the ‘call for evidence’) (9). The call for evidence was closed on 5 February 2018. ESMA received almost 18 500 (10) responses. Among those responses, 82 were from providers, trade organisations, stock exchanges and brokers involved in the binary options and/or CFD business, 10 were from consumer representatives and the remaining responses came from individuals. A vast majority of the responses from individuals were facilitated and channelled via binary option and/or CFD providers. The call for evidence disclosed a general concern from the first category of respondents and, in particular, product providers, that the proposed measure would adversely impact their business. A number of individuals also complained about the proposed measure and expressed their willingness to continue trading in binary options.

9

10

| (5) | ESMA has duly considered such concerns. However, after balancing them against the significant investor protection concern identified, which was further confirmed by the responses received from nearly all consumer representatives and a number of individuals in strong support of the proposed measures, ESMA considers it necessary to impose a temporary prohibition on the marketing, distribution or sale of BOs to retail clients in accordance with Article 40 of Regulation (EU) No 600/2014. |
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(5)

ESMA has duly considered such concerns. However, after balancing them against the significant investor protection concern identified, which was further confirmed by the responses received from nearly all consumer representatives and a number of individuals in strong support of the proposed measures, ESMA considers it necessary to impose a temporary prohibition on the marketing, distribution or sale of BOs to retail clients in accordance with Article 40 of Regulation (EU) No 600/2014.

| (6) | A measure imposed under Article 40 of Regulation (EU) No 600/2014 must be reviewed at appropriate intervals and at least every 3 months. In reviewing this measure, ESMA will tackle any evasive practices that may emerge. If the measure is not renewed after 3 months, it will expire. |
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(6)

A measure imposed under Article 40 of Regulation (EU) No 600/2014 must be reviewed at appropriate intervals and at least every 3 months. In reviewing this measure, ESMA will tackle any evasive practices that may emerge. If the measure is not renewed after 3 months, it will expire.

| (7) | For the avoidance of doubt, terms used in this Decision have the same meaning as in Directive 2014/65/EU of the European Parliament and of the Council (11) and Regulation (EU) No 600/2014, including the definition of derivatives. |
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(7)

For the avoidance of doubt, terms used in this Decision have the same meaning as in Directive 2014/65/EU of the European Parliament and of the Council (11) and Regulation (EU) No 600/2014, including the definition of derivatives.

11

| (8) | ESMA's temporary prohibition fulfils the conditions set out in Article 40 of Regulation (EU) No 600/2014 for the reasons explained below. |
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(8)

ESMA's temporary prohibition fulfils the conditions set out in Article 40 of Regulation (EU) No 600/2014 for the reasons explained below.

2.   DESCRIPTION OF THE BINARY OPTIONS RETAIL MARKET AND THE EXISTENCE OF A SIGNIFICANT INVESTOR PROTECTION CONCERN (ARTICLE 40(2)(a) OF REGULATION (EU) No 600/2014)

DESCRIPTION OF THE BINARY OPTIONS RETAIL MARKET AND THE EXISTENCE OF A SIGNIFICANT INVESTOR PROTECTION CONCERN (ARTICLE 40(2)(a) OF REGULATION (EU) No 600/2014)

| (9) | A binary option is defined as any cash settled derivative in which the payment of a fixed monetary amount depends on whether one or more specified events in relation to the price, level or value of the underlying occurs at, or prior to, the derivative's expiry (12) (for example the underlying has reached a specified price (‘the strike price’) at expiry). |
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(9)

A binary option is defined as any cash settled derivative in which the payment of a fixed monetary amount depends on whether one or more specified events in relation to the price, level or value of the underlying occurs at, or prior to, the derivative's expiry (12) (for example the underlying has reached a specified price (‘the strike price’) at expiry).

12

| (10) | Binary options give enable an investor to make a bet on the occurrence of a specified event in relation to the price, level or value of one or more underlying (for example a share, a currency, a commodity or an index). If the event does not occur, the investor loses their money (that is the option finishes ‘out-of-the-money’). If the event occurs, the option pays out or the contract remains open with the opportunity to receive a pay out if a separate event occurs (the option finishes ‘in-the-money’). In this sense, binary options can be regarded as ‘yes/no propositions’. Often, the ‘yes/no proposition’ is whether the price of the underlying at expiry of the binary option is above or below a given price (the so-called ‘strike price’). In some cases, the ‘strike price’ corresponds to the market price of the underlying at the time of entering into the binary option or at a future specified time. However, binary option providers offer a range of potential market outcomes for investors to bet on (13). |
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(10)

Binary options give enable an investor to make a bet on the occurrence of a specified event in relation to the price, level or value of one or more underlying (for example a share, a currency, a commodity or an index). If the event does not occur, the investor loses their money (that is the option finishes ‘out-of-the-money’). If the event occurs, the option pays out or the contract remains open with the opportunity to receive a pay out if a separate event occurs (the option finishes ‘in-the-money’). In this sense, binary options can be regarded as ‘yes/no propositions’. Often, the ‘yes/no proposition’ is whether the price of the underlying at expiry of the binary option is above or below a given price (the so-called ‘strike price’). In some cases, the ‘strike price’ corresponds to the market price of the underlying at the time of entering into the binary option or at a future specified time. However, binary option providers offer a range of potential market outcomes for investors to bet on (13).

13

| (11) | It is appropriate to clarify that all binary options, although marketed, distributed or sold under other names, fall within the scope of application of this Decision. Reference is made, for example, to all-or-nothing options, up-or-down options, trend options, digital options and one-touch options. |
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(11)

It is appropriate to clarify that all binary options, although marketed, distributed or sold under other names, fall within the scope of application of this Decision. Reference is made, for example, to all-or-nothing options, up-or-down options, trend options, digital options and one-touch options.

| (12) | It is also appropriate to ensure that this Decision includes binary options that have several different predetermined conditions, which have to be met (or not met) before the payment is provided. Some respondents to the call for evidence indicated, for example, the case of a binary option that provides payment of (i) a predetermined amount if the underlying meets a certain predetermined condition (for example the value of the underlying rises on a specific date), as well as (ii) an additional predetermined amount (a ‘bonus’) if the underlying meets another predetermined condition (for example the value of the underlying rises above a certain percentage). In this and similar cases, the payment of the sum of the two predetermined amounts in points (i) and (ii) would amount to the payment of a predetermined fixed amount for the purposes of Article 1(2)(c) of this Decision. |
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(12)

It is also appropriate to ensure that this Decision includes binary options that have several different predetermined conditions, which have to be met (or not met) before the payment is provided. Some respondents to the call for evidence indicated, for example, the case of a binary option that provides payment of (i) a predetermined amount if the underlying meets a certain predetermined condition (for example the value of the underlying rises on a specific date), as well as (ii) an additional predetermined amount (a ‘bonus’) if the underlying meets another predetermined condition (for example the value of the underlying rises above a certain percentage). In this and similar cases, the payment of the sum of the two predetermined amounts in points (i) and (ii) would amount to the payment of a predetermined fixed amount for the purposes of Article 1(2)(c) of this Decision.

| (13) | Several NCAs have raised concerns about binary options not meeting any genuine investment needs for retail clients (unlike other types of options, which can serve a valuable role in hedging exposure to certain assets) (14). Furthermore, several NCAs have voiced concerns about the risks related to the inherent features of binary options as well as the in-built and unmanageable conflicts of interest related to the offer of these products to retail clients. These risks are often amplified by the aggressive marketing techniques used by binary option providers. Several NCAs have also indicated that these products attract compulsive gambling behaviour. A study from the UK-FCA demonstrated that some investors place many bets within the space of a few days or weeks, despite losing money on a cumulative basis. The study also found a close similarity in payoff structure and time horizon between binary options and gambling products (15). These concerns have materialised across several jurisdictions, with a vast majority of retail clients in those jurisdictions typically losing money as evidenced in this Decision (16). |
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(13)

Several NCAs have raised concerns about binary options not meeting any genuine investment needs for retail clients (unlike other types of options, which can serve a valuable role in hedging exposure to certain assets) (14). Furthermore, several NCAs have voiced concerns about the risks related to the inherent features of binary options as well as the in-built and unmanageable conflicts of interest related to the offer of these products to retail clients. These risks are often amplified by the aggressive marketing techniques used by binary option providers. Several NCAs have also indicated that these products attract compulsive gambling behaviour. A study from the UK-FCA demonstrated that some investors place many bets within the space of a few days or weeks, despite losing money on a cumulative basis. The study also found a close similarity in payoff structure and time horizon between binary options and gambling products (15). These concerns have materialised across several jurisdictions, with a vast majority of retail clients in those jurisdictions typically losing money as evidenced in this Decision (16).

14

15

16

| (14) | As demonstrated in the IOSCO report on the IOSCO survey on retail OTC leveraged products (17) (the ‘IOSCO report’), this market sector has also been subject to significant regulatory scrutiny in a number of other non-EU jurisdictions because of the complex and risky nature of inter alia binary options and the frequently cross-border dimension of product providers which operate predominantly through the Internet (18). According to the IOSCO report, ‘recent research reports in several national markets have shown that a large majority of investors in [binary options and other speculative products] very often lose money’ (19). |
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(14)

As demonstrated in the IOSCO report on the IOSCO survey on retail OTC leveraged products (17) (the ‘IOSCO report’), this market sector has also been subject to significant regulatory scrutiny in a number of other non-EU jurisdictions because of the complex and risky nature of inter alia binary options and the frequently cross-border dimension of product providers which operate predominantly through the Internet (18). According to the IOSCO report, ‘recent research reports in several national markets have shown that a large majority of investors in [binary options and other speculative products] very often lose money’ (19).

17

18

19

| (15) | The condition referred to in Article 40(2)(a) of Regulation (EU) No 600/2014 is that there must exist inter alia a significant investor protection concern. In determining whether there exists a significant investor protection concern, ESMA has assessed the relevance of the criteria and factors listed in Article 19(2) of the Delegated Regulation (EU) 2017/567. After taking the relevant criteria and factors into consideration, ESMA has concluded that there is a significant investor protection concern for the following reasons. |
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(15)

The condition referred to in Article 40(2)(a) of Regulation (EU) No 600/2014 is that there must exist inter alia a significant investor protection concern. In determining whether there exists a significant investor protection concern, ESMA has assessed the relevance of the criteria and factors listed in Article 19(2) of the Delegated Regulation (EU) 2017/567. After taking the relevant criteria and factors into consideration, ESMA has concluded that there is a significant investor protection concern for the following reasons.

2.1.   The degree of complexity and transparency of binary options

The degree of complexity and transparency of binary options

| (16) | Binary options are complex financial instruments (20). The complexities of the pricing structure pose a risk of significant information asymmetries between providers and retail clients and hence raise significant investor protection concerns. Furthermore, there are a number of inherent features of binary options that make them complex and difficult for retail clients to understand. |
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(16)

Binary options are complex financial instruments (20). The complexities of the pricing structure pose a risk of significant information asymmetries between providers and retail clients and hence raise significant investor protection concerns. Furthermore, there are a number of inherent features of binary options that make them complex and difficult for retail clients to understand.

20

| (17) | Binary option providers typically price binary options based on the market-implied or otherwise modelled probability of a specified event occurring before applying a spread or other form of transaction fee to each option such that it yields a negative expected return for the client (21). |
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(17)

Binary option providers typically price binary options based on the market-implied or otherwise modelled probability of a specified event occurring before applying a spread or other form of transaction fee to each option such that it yields a negative expected return for the client (21).

21

| (18) | Most commonly binary options offer a comparatively large return for a statistically less likely event and vice-versa (22). |
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(18)

Most commonly binary options offer a comparatively large return for a statistically less likely event and vice-versa (22).

22

| (19) | This pricing structure of binary options presents a number of challenges for retail clients. In particular, the pricing structure requires retail clients to accurately assess the value of the option in relation to the expected probability of the reference event occurring. Although retail clients may use common research and pricing tools, such as the Black-Scholes formula, to price binary options, retail clients face significant information asymmetries compared to providers. Providers have much greater access to information and systems to properly price and value these products. In particular, binary option providers have access to historical price data — for example, recorded price feeds from an exchange or commercial data provider in relation to a given underlying — which is not generally available to retail clients. Binary option providers also have much more experience in pricing contracts than retail clients typically do and are more likely to have developed sophisticated pricing methodologies. Furthermore, retail clients may not appreciate that if a trade has a very short term, or if a position is closed close to expiry, factors used to price options such as historic volatility have little impact on the option's value. This limits the ability of retail clients to properly value the option, even when using available pricing tools. Moreover, due to the application of spreads and other transaction fees, retail clients would need to outperform expected returns on investment significantly (‘beat the odds’) on a regular basis to achieve profits from trading. Therefore, in ESMA's view, it is difficult for retail clients to make an informed assessment of the risk-return profile of the product. |
| --- | --- |

(19)

This pricing structure of binary options presents a number of challenges for retail clients. In particular, the pricing structure requires retail clients to accurately assess the value of the option in relation to the expected probability of the reference event occurring. Although retail clients may use common research and pricing tools, such as the Black-Scholes formula, to price binary options, retail clients face significant information asymmetries compared to providers. Providers have much greater access to information and systems to properly price and value these products. In particular, binary option providers have access to historical price data — for example, recorded price feeds from an exchange or commercial data provider in relation to a given underlying — which is not generally available to retail clients. Binary option providers also have much more experience in pricing contracts than retail clients typically do and are more likely to have developed sophisticated pricing methodologies. Furthermore, retail clients may not appreciate that if a trade has a very short term, or if a position is closed close to expiry, factors used to price options such as historic volatility have little impact on the option's value. This limits the ability of retail clients to properly value the option, even when using available pricing tools. Moreover, due to the application of spreads and other transaction fees, retail clients would need to outperform expected returns on investment significantly (‘beat the odds’) on a regular basis to achieve profits from trading. Therefore, in ESMA's view, it is difficult for retail clients to make an informed assessment of the risk-return profile of the product.

| (20) | The combined effect of the pricing structure and the application of transaction fees to each trade is that a large majority of retail client accounts lose money in aggregate (even though they may make short-term profits) and providers, which are typically direct counterparties to the trade, make a profit from clients in the long term through their losses from trading and through transaction fees. |
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(20)

The combined effect of the pricing structure and the application of transaction fees to each trade is that a large majority of retail client accounts lose money in aggregate (even though they may make short-term profits) and providers, which are typically direct counterparties to the trade, make a profit from clients in the long term through their losses from trading and through transaction fees.

| (21) | Some providers offer continual two-way pricing and the ability for clients to enter and exit the trade over the course of the term of a binary option. In such a case, a client can exit their position prior to the binary option's expiry by selling it back to the provider or otherwise forfeiting the conditional payment at expiry. In return, the client receives some payment from the provider, as per the continual price offered by the provider depending on the difference between the current market price and the fixed strike price of the underlying and the time to expiry. |
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(21)

Some providers offer continual two-way pricing and the ability for clients to enter and exit the trade over the course of the term of a binary option. In such a case, a client can exit their position prior to the binary option's expiry by selling it back to the provider or otherwise forfeiting the conditional payment at expiry. In return, the client receives some payment from the provider, as per the continual price offered by the provider depending on the difference between the current market price and the fixed strike price of the underlying and the time to expiry.

| (22) | Continual two-way pricing is an additional feature that may be offered by binary option providers. This feature adds a further layer of complexity, which makes it difficult for retail clients to value these products accurately or make a positive return on investment. This is because retail clients would need to continuously monitor the pricing and estimate the expected outcome. Furthermore, exiting a trade and entering a new one comes at an additional cost to the client due to the application of a spread to the offer price or through transaction fees (23). |
| --- | --- |

(22)

Continual two-way pricing is an additional feature that may be offered by binary option providers. This feature adds a further layer of complexity, which makes it difficult for retail clients to value these products accurately or make a positive return on investment. This is because retail clients would need to continuously monitor the pricing and estimate the expected outcome. Furthermore, exiting a trade and entering a new one comes at an additional cost to the client due to the application of a spread to the offer price or through transaction fees (23).

23

| (23) | Furthermore, EU retail clients typically invest in binary options OTC. As such the pricing, performance and settlement of binary options is not standardised. This impairs retail clients' ability to understand the terms of the product. This, in addition to the differences in the type of ‘yes/no propositions’ that form the basis of a binary option, the complex pricing structure (sometimes including two-way pricing) and the existence of even more complex offerings (such as options that package together a set of binary options), add to the complexity of these products and further undermine retail clients' ability to understand that the specific features of one type of binary option do not necessarily feature in another. |
| --- | --- |

(23)

Furthermore, EU retail clients typically invest in binary options OTC. As such the pricing, performance and settlement of binary options is not standardised. This impairs retail clients' ability to understand the terms of the product. This, in addition to the differences in the type of ‘yes/no propositions’ that form the basis of a binary option, the complex pricing structure (sometimes including two-way pricing) and the existence of even more complex offerings (such as options that package together a set of binary options), add to the complexity of these products and further undermine retail clients' ability to understand that the specific features of one type of binary option do not necessarily feature in another.

| (24) | In addition, binary option providers are typically the counterparty to their retail clients' trades, with the provider determining the price at execution and the payment at expiry. In addition, providers often require clients to acknowledge that the prices used to determine the value of the binary option may differ from the price available in the respective underlying market. This means that it may not always be possible for retail clients to check the accuracy of the prices received from the provider. These factors make it extremely complex for retail clients to value binary options objectively. The high level of complexity and poor degree of transparency associated with binary options therefore confirms that a significant investor protection concern exists. |
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(24)

In addition, binary option providers are typically the counterparty to their retail clients' trades, with the provider determining the price at execution and the payment at expiry. In addition, providers often require clients to acknowledge that the prices used to determine the value of the binary option may differ from the price available in the respective underlying market. This means that it may not always be possible for retail clients to check the accuracy of the prices received from the provider. These factors make it extremely complex for retail clients to value binary options objectively. The high level of complexity and poor degree of transparency associated with binary options therefore confirms that a significant investor protection concern exists.

| (25) | In response to the call for evidence, a number of firms and trade organisations questioned whether ESMA should distinguish between binary options traded OTC and the ones that are traded on a trading venue. Some trade organisations asked for an explicit exclusion for securitised derivatives, touch-options and digital options, on the grounds that these products were used as an alternative for a stop-loss order or could serve as a hedge. |
| --- | --- |

(25)

In response to the call for evidence, a number of firms and trade organisations questioned whether ESMA should distinguish between binary options traded OTC and the ones that are traded on a trading venue. Some trade organisations asked for an explicit exclusion for securitised derivatives, touch-options and digital options, on the grounds that these products were used as an alternative for a stop-loss order or could serve as a hedge.

| (26) | ESMA has duly considered these responses. However, the features and characteristics of binary options, which are the fundamental source of the identified detriment to retail clients, remain the same whether or not these products are traded on a trading venue or securitised. In other words, binary options on a trading venue would still present a negative expected return to investors, while offering a payoff structure which is not well-suited to hedging or to performing other economic functions that could form a compensating benefit. Notably, these properties hold true at any time prior to the expiry of the option. The existence of a secondary market in particular, therefore, does not change the fundamental characteristics that cause detriment to retail clients. |
| --- | --- |

(26)

ESMA has duly considered these responses. However, the features and characteristics of binary options, which are the fundamental source of the identified detriment to retail clients, remain the same whether or not these products are traded on a trading venue or securitised. In other words, binary options on a trading venue would still present a negative expected return to investors, while offering a payoff structure which is not well-suited to hedging or to performing other economic functions that could form a compensating benefit. Notably, these properties hold true at any time prior to the expiry of the option. The existence of a secondary market in particular, therefore, does not change the fundamental characteristics that cause detriment to retail clients.

2.2.   The particular features or components of binary options

The particular features or components of binary options

| (27) | Binary options are typically very short-term investments, in some cases expiring minutes after being entered into, which makes them extremely speculative in nature. |
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(27)

Binary options are typically very short-term investments, in some cases expiring minutes after being entered into, which makes them extremely speculative in nature.

| (28) | The binary outcome nature of binary options mean that they are primarily used for speculative purposes. The payment of a fixed monetary amount or zero limits the value of binary options as a hedging tool in contrast to traditional options, which allow the client to manage their risk by setting a ‘ceiling’ or ‘floor’ for a specific asset that they may have direct exposure to. This is exacerbated by the typical short term of binary options. |
| --- | --- |

(28)

The binary outcome nature of binary options mean that they are primarily used for speculative purposes. The payment of a fixed monetary amount or zero limits the value of binary options as a hedging tool in contrast to traditional options, which allow the client to manage their risk by setting a ‘ceiling’ or ‘floor’ for a specific asset that they may have direct exposure to. This is exacerbated by the typical short term of binary options.

| (29) | Furthermore, binary options are priced according to the probability of an event occurring, quoting payoffs in a similar manner as traditional fixed-odds bets (for example bets on sporting events or election outcomes). Trades are mostly of very short terms and investors stand either to make a very large return or to lose their entire investment. These fundamental features are also found in gambling products, which are linked with addictive behaviour and poor outcomes for consumers. |
| --- | --- |

(29)

Furthermore, binary options are priced according to the probability of an event occurring, quoting payoffs in a similar manner as traditional fixed-odds bets (for example bets on sporting events or election outcomes). Trades are mostly of very short terms and investors stand either to make a very large return or to lose their entire investment. These fundamental features are also found in gambling products, which are linked with addictive behaviour and poor outcomes for consumers.

| (30) | As mentioned above, binary option providers usually act as direct counterparty to the client's trade, hence taking the client's trade onto their own book. This business model places the provider's interests in direct conflict with those of its clients, which increases the risk that the provider may manipulate the price of the underlying at expiry of the binary option or extend the term of the binary option by seconds or milliseconds so as to avoid having to pay out on the option contract. The risk of conflict of interest is particularly acute for binary options, as the payment structure of these products is determined by whether the underlying has reached the specified strike price at expiry. NCAs have also identified practices whereby binary options providers apply an asymmetrical or inconsistent mark up to core spreads on the underlying, which results in the option being ‘out of the money’ where it otherwise would be ‘in the money’ at expiry. In addition, the distribution models observed by ESMA in this sector of the market bear certain and sometimes inherent conflicts of interest (24) and the pressure to maintain a pipeline of new clients increase the potential for conflicts of interest to occur. |
| --- | --- |

(30)

As mentioned above, binary option providers usually act as direct counterparty to the client's trade, hence taking the client's trade onto their own book. This business model places the provider's interests in direct conflict with those of its clients, which increases the risk that the provider may manipulate the price of the underlying at expiry of the binary option or extend the term of the binary option by seconds or milliseconds so as to avoid having to pay out on the option contract. The risk of conflict of interest is particularly acute for binary options, as the payment structure of these products is determined by whether the underlying has reached the specified strike price at expiry. NCAs have also identified practices whereby binary options providers apply an asymmetrical or inconsistent mark up to core spreads on the underlying, which results in the option being ‘out of the money’ where it otherwise would be ‘in the money’ at expiry. In addition, the distribution models observed by ESMA in this sector of the market bear certain and sometimes inherent conflicts of interest (24) and the pressure to maintain a pipeline of new clients increase the potential for conflicts of interest to occur.

24

| (31) | Given that binary options structurally have negative expected returns, the more positions an investor takes, the more likely they are to lose money on a cumulative basis (25). |
| --- | --- |

(31)

Given that binary options structurally have negative expected returns, the more positions an investor takes, the more likely they are to lose money on a cumulative basis (25).

25

| (32) | The high risk of binary options being traded speculatively as well as of conflict of interests between binary option providers and their clients confirm the existence of a significant investor protection concern. |
| --- | --- |

(32)

The high risk of binary options being traded speculatively as well as of conflict of interests between binary option providers and their clients confirm the existence of a significant investor protection concern.

2.3.   The size of potential detrimental consequences and the degree of disparity between returns for investors and the risk of loss

The size of potential detrimental consequences and the degree of disparity between returns for investors and the risk of loss

| (33) | Client numbers in relation to these products are fluid due to the relatively short life span of binary options client accounts and the cross-border nature of activities. Based on data gathered by ESMA from a number of NCAs (26), ESMA estimates that the number of retail clients' trading accounts from EEA-based CFD and binary option providers increased from 1,5 million in 2015 (27) to approximately 2,2 million in 2017 (28). |
| --- | --- |

(33)

Client numbers in relation to these products are fluid due to the relatively short life span of binary options client accounts and the cross-border nature of activities. Based on data gathered by ESMA from a number of NCAs (26), ESMA estimates that the number of retail clients' trading accounts from EEA-based CFD and binary option providers increased from 1,5 million in 2015 (27) to approximately 2,2 million in 2017 (28).

26

27

28

| (34) | In particular, the following information provided by NCAs to ESMA confirms that the market sector of binary options has grown across the Union:






  (i) | the Cyprus Securities and Exchange Commission (CY-CySEC), the NCA in Cyprus, estimated the total number of active clients in Cyprus in binary options at the end of the second quarter 2017 to be 401 378 compared to 140 205 in 2015 (29); |
| --- | --- | --- |

(34)

In particular, the following information provided by NCAs to ESMA confirms that the market sector of binary options has grown across the Union:

(i)

the Cyprus Securities and Exchange Commission (CY-CySEC), the NCA in Cyprus, estimated the total number of active clients in Cyprus in binary options at the end of the second quarter 2017 to be 401 378 compared to 140 205 in 2015 (29);

29

| (ii) | the Bundesanstalt für Finanzdienstleistungsaufsicht (DE-BaFin), the NCA in Germany, estimates that there are up to 30 000 binary options clients in Germany, with the overall market in Germany growing at an annual rate of 4-5 % (30); |
| --- | --- |

(ii)

the Bundesanstalt für Finanzdienstleistungsaufsicht (DE-BaFin), the NCA in Germany, estimates that there are up to 30 000 binary options clients in Germany, with the overall market in Germany growing at an annual rate of 4-5 % (30);

30

| (iii) | From sample client data from firms provided to the Financial Conduct Authority (UK-FCA), the NCA in the UK, it is estimated that the number of clients trading with UK binary option providers is around 40 000; |
| --- | --- |

(iii)

From sample client data from firms provided to the Financial Conduct Authority (UK-FCA), the NCA in the UK, it is estimated that the number of clients trading with UK binary option providers is around 40 000;

| (iv) | the Commissione Nazionale per le Società e la Borsa (IT-CONSOB), the NCA in Italy, found on the basis of a survey carried out in March 2017 at five branches of EU-based binary option providers that in 2016 there was a 2,4 % increase in the number of Italian retail clients trading in binary options; |
| --- | --- |

(iv)

the Commissione Nazionale per le Società e la Borsa (IT-CONSOB), the NCA in Italy, found on the basis of a survey carried out in March 2017 at five branches of EU-based binary option providers that in 2016 there was a 2,4 % increase in the number of Italian retail clients trading in binary options;

| (v) | a number of NCAs reported that binary options are widely marketed and sold in their jurisdictions (31); |
| --- | --- |

(v)

a number of NCAs reported that binary options are widely marketed and sold in their jurisdictions (31);

31

| (vi) | nearly all NCAs (32) reported that binary option providers passporting from other Member States are providing services in binary options in their jurisdictions. Some NCAs (33) also mentioned binary option providers using branches or tied agents to passport to host jurisdictions; and |
| --- | --- |

(vi)

nearly all NCAs (32) reported that binary option providers passporting from other Member States are providing services in binary options in their jurisdictions. Some NCAs (33) also mentioned binary option providers using branches or tied agents to passport to host jurisdictions; and

32

33

| (vii) | NCAs have noted an increase in the number of requests for authorisation for investment firms offering the products in question (34). |
| --- | --- |

(vii)

NCAs have noted an increase in the number of requests for authorisation for investment firms offering the products in question (34).

34

| (35) | According to the IOSCO report, amongst the most common complaints across jurisdictions with regard to authorised providers are those related to product performance (investor losses incurred), clients not understanding the product or service provided (and its risks), difficulties in withdrawing funds, aggressive/misleading marketing, and price or trade manipulation (35). |
| --- | --- |

(35)

According to the IOSCO report, amongst the most common complaints across jurisdictions with regard to authorised providers are those related to product performance (investor losses incurred), clients not understanding the product or service provided (and its risks), difficulties in withdrawing funds, aggressive/misleading marketing, and price or trade manipulation (35).

35

| (36) | The aforementioned ESMA analysis on retail clients' expected negative returns (36) is also corroborated by data on losses suffered by retail clients reported to ESMA by certain NCAs:






  (i) | CY-CySEC conducted analysis of a sample of binary option client accounts of 10 binary options providers for the period from 1 January 2017 to 31 August 2017. It found that on average, 87 % of client accounts made a loss over that period. On average, the loss per account was around EUR 480; |
| --- | --- | --- |

(36)

The aforementioned ESMA analysis on retail clients' expected negative returns (36) is also corroborated by data on losses suffered by retail clients reported to ESMA by certain NCAs:

36

(i)

CY-CySEC conducted analysis of a sample of binary option client accounts of 10 binary options providers for the period from 1 January 2017 to 31 August 2017. It found that on average, 87 % of client accounts made a loss over that period. On average, the loss per account was around EUR 480;

| (ii) | the Komisja Nadzoru Finansowego (PL-KNF), the NCA in Poland, based on data from a Polish investment firm, found that 86,3 % of the clients lost money in 2016 and 86,4 % lost money in 2017; |
| --- | --- |

(ii)

the Komisja Nadzoru Finansowego (PL-KNF), the NCA in Poland, based on data from a Polish investment firm, found that 86,3 % of the clients lost money in 2016 and 86,4 % lost money in 2017;

| (iii) | IT-CONSOB found on the basis of a survey carried out in March 2017 at five branches of EU-based investment firms active in binary options that Italian retail clients investing in binary options realised relevant losses in 2016 up to 74 % with an average loss of approximately EUR 590; and |
| --- | --- |

(iii)

IT-CONSOB found on the basis of a survey carried out in March 2017 at five branches of EU-based investment firms active in binary options that Italian retail clients investing in binary options realised relevant losses in 2016 up to 74 % with an average loss of approximately EUR 590; and

| (iv) | UK-FCA found from a review of firm data reporting client account performance in 2016 that between 81 % and 85 % of client accounts lost money and that, on average, clients made a loss between GBP 400 and GBP 1 200. Reported figures indicate that clients made a profit from trading but made a loss when taking into account the impact of transaction fees. This indicates that clients may not understand the impact of transaction fees on the performance of their account. |
| --- | --- |

(iv)

UK-FCA found from a review of firm data reporting client account performance in 2016 that between 81 % and 85 % of client accounts lost money and that, on average, clients made a loss between GBP 400 and GBP 1 200. Reported figures indicate that clients made a profit from trading but made a loss when taking into account the impact of transaction fees. This indicates that clients may not understand the impact of transaction fees on the performance of their account.

2.4.   The type of clients involved

The type of clients involved

| (37) | Binary options are widely marketed, distributed or sold to the retail mass market. However, the complexity of binary options, as described in this Decision, makes it difficult for the majority of retail (unlike professional) clients to properly understand and assess the actual risk they incur when dealing with these products. The evidence of losses observed by ESMA in retail client accounts described in this Decision demonstrates that binary options are unsuited to retail clients. |
| --- | --- |

(37)

Binary options are widely marketed, distributed or sold to the retail mass market. However, the complexity of binary options, as described in this Decision, makes it difficult for the majority of retail (unlike professional) clients to properly understand and assess the actual risk they incur when dealing with these products. The evidence of losses observed by ESMA in retail client accounts described in this Decision demonstrates that binary options are unsuited to retail clients.

2.5.   Marketing and distribution activities in relation to binary options

Marketing and distribution activities in relation to binary options

| (38) | Although binary options are complex products, they are offered to retail clients most commonly via electronic trading platforms, without the provision of investment advice or portfolio management. An assessment of appropriateness is required in such cases pursuant to Article 25(3) of Directive 2014/65/EU (37). However, this assessment does not prevent binary options providers or their clients or potential clients proceeding with a transaction, subject to a simple warning to the client. This can occur where the client has provided no or insufficient information to the provider as to their knowledge and experience in the investment field relevant to the specific type of product as well as where the provider has concluded that the product is not appropriate for the client. This enables retail clients to access products, such as binary options, which, by their features, should not be distributed to them (38). |
| --- | --- |

(38)

Although binary options are complex products, they are offered to retail clients most commonly via electronic trading platforms, without the provision of investment advice or portfolio management. An assessment of appropriateness is required in such cases pursuant to Article 25(3) of Directive 2014/65/EU (37). However, this assessment does not prevent binary options providers or their clients or potential clients proceeding with a transaction, subject to a simple warning to the client. This can occur where the client has provided no or insufficient information to the provider as to their knowledge and experience in the investment field relevant to the specific type of product as well as where the provider has concluded that the product is not appropriate for the client. This enables retail clients to access products, such as binary options, which, by their features, should not be distributed to them (38).

37

38

| (39) | Also in the light of ESMA's Questions and Answers (Q&As) (39), NCAs have observed aggressive marketing practices as well as misleading marketing communications in this sector of the market (40). They include, for example, the use of sponsorship arrangements or affiliations with major sports teams, which give the misleading impression that complex and speculative products such as binary options are suitable for the retail mass market by promoting general brand name awareness. |
| --- | --- |

(39)

Also in the light of ESMA's Questions and Answers (Q&As) (39), NCAs have observed aggressive marketing practices as well as misleading marketing communications in this sector of the market (40). They include, for example, the use of sponsorship arrangements or affiliations with major sports teams, which give the misleading impression that complex and speculative products such as binary options are suitable for the retail mass market by promoting general brand name awareness.

39

40

| (40) | Furthermore, some NCAs have highlighted not only the regular use of misleading marketing materials, but also the extensive and intensive nature of the marketing activities undertaken:






  (i) | the Autorité des Marchés Financiers (FR-AMF), the NCA in France, has reported that for 2016, the number of new advertisements (TV, radio, internet) for speculative trading (binary options, CFDs, forex) represented 36 % of all new advertisements in the financial domain, and 45 % of all new advertisements for financial instruments (41); |
| --- | --- | --- |

(40)

Furthermore, some NCAs have highlighted not only the regular use of misleading marketing materials, but also the extensive and intensive nature of the marketing activities undertaken:

(i)

the Autorité des Marchés Financiers (FR-AMF), the NCA in France, has reported that for 2016, the number of new advertisements (TV, radio, internet) for speculative trading (binary options, CFDs, forex) represented 36 % of all new advertisements in the financial domain, and 45 % of all new advertisements for financial instruments (41);

41

| (ii) | DE-BaFin has noted that investment firms based in another European Union jurisdiction, although small in size, may use up to 200 introducing brokers simultaneously (42); and |
| --- | --- |

(ii)

DE-BaFin has noted that investment firms based in another European Union jurisdiction, although small in size, may use up to 200 introducing brokers simultaneously (42); and

42

| (iii) | some NCAs have noted that the distribution of binary options can occur through electronic gaming or slot machines (43). |
| --- | --- |

(iii)

some NCAs have noted that the distribution of binary options can occur through electronic gaming or slot machines (43).

43

| (41) | These developments are of particular concern given the increase in retail clients participating in this sector of the market. |
| --- | --- |

(41)

These developments are of particular concern given the increase in retail clients participating in this sector of the market.

| (42) | Also in this context, some NCAs have also raised concerns about the ‘churning’ nature of the business models (44). Because the average life span of a client account can be relatively short, this can place a certain pressure on providers to maintain a steady stream of new clients, which could incentivise providers to adopt aggressive marketing and sales techniques that are not in the retail client's best interests. |
| --- | --- |

(42)

Also in this context, some NCAs have also raised concerns about the ‘churning’ nature of the business models (44). Because the average life span of a client account can be relatively short, this can place a certain pressure on providers to maintain a steady stream of new clients, which could incentivise providers to adopt aggressive marketing and sales techniques that are not in the retail client's best interests.

44

| (43) | A common feature of marketing and sales techniques adopted by the binary option industry is the offer of trading (monetary and non-monetary) benefits, such as bonuses to attract and encourage retail clients to invest in binary options, the offer of gifts (for example holidays, cars, electronic goods), trading tutorials or reduced costs (for example spread or fees) (45). |
| --- | --- |

(43)

A common feature of marketing and sales techniques adopted by the binary option industry is the offer of trading (monetary and non-monetary) benefits, such as bonuses to attract and encourage retail clients to invest in binary options, the offer of gifts (for example holidays, cars, electronic goods), trading tutorials or reduced costs (for example spread or fees) (45).

45

| (44) | Bonuses and other trading benefits can act as a distraction from the high-risk nature of the product. They are typically targeted to attract retail clients and incentivise trading. Retail clients can consider these promotions as a central product feature to the point they may fail to properly assess the level of risks associated with the product. |
| --- | --- |

(44)

Bonuses and other trading benefits can act as a distraction from the high-risk nature of the product. They are typically targeted to attract retail clients and incentivise trading. Retail clients can consider these promotions as a central product feature to the point they may fail to properly assess the level of risks associated with the product.

| (45) | The practice of bonus systems is inspired by the online betting industry. Some providers marketing the relevant products offer ‘welcome bonuses’ (for any account opening) as well as bonuses based on the invested amounts (volume bonuses), for example, or as additional amounts of ‘virtual cash’ under certain conditions. |
| --- | --- |

(45)

The practice of bonus systems is inspired by the online betting industry. Some providers marketing the relevant products offer ‘welcome bonuses’ (for any account opening) as well as bonuses based on the invested amounts (volume bonuses), for example, or as additional amounts of ‘virtual cash’ under certain conditions.

| (46) | Supervisory work by several NCAs has discovered that the terms and conditions on promotional offers are often misleading and that many clients reported difficulties in withdrawing funds when trying to use such bonuses or are unaware that their access to the bonus offer or funds depends on a specified volume of trades. Given the feature of negative expected returns associated with trading in binary options, this often means that clients lose more money from trading more frequently than they otherwise would have without receiving a bonus offer. |
| --- | --- |

(46)

Supervisory work by several NCAs has discovered that the terms and conditions on promotional offers are often misleading and that many clients reported difficulties in withdrawing funds when trying to use such bonuses or are unaware that their access to the bonus offer or funds depends on a specified volume of trades. Given the feature of negative expected returns associated with trading in binary options, this often means that clients lose more money from trading more frequently than they otherwise would have without receiving a bonus offer.

| (47) | In particular (46):






  (i) | FR-AMF has pointed out that one of the main issues about bonuses is that the client typically has to invest 20 or 30 times the amount of the bonus to have the right to withdraw the money; |
| --- | --- | --- |

(47)

In particular (46):

46

(i)

FR-AMF has pointed out that one of the main issues about bonuses is that the client typically has to invest 20 or 30 times the amount of the bonus to have the right to withdraw the money;

| (ii) | the Financial Services and Markets Authority (‘BE-FSMA’), the Belgian NCA, has noted that it has received many complaints from investors unable to recover their money due to the conditions applicable to bonuses; |
| --- | --- |

(ii)

the Financial Services and Markets Authority (‘BE-FSMA’), the Belgian NCA, has noted that it has received many complaints from investors unable to recover their money due to the conditions applicable to bonuses;

| (iii) | PL-KNF has reported that providers offer gifts like tablets or phones to attract new clients, and that providers claim the gifts enhance the client's ability to contact the investment firm; and |
| --- | --- |

(iii)

PL-KNF has reported that providers offer gifts like tablets or phones to attract new clients, and that providers claim the gifts enhance the client's ability to contact the investment firm; and

| (iv) | DE-BaFin has stated that in the majority of cases involving bonuses observed so far, bonuses are offered by binary option providers acting on a cross-border basis to persuade inexperienced retail clients to speculate in the relevant products, which they may not fully understand. |
| --- | --- |

(iv)

DE-BaFin has stated that in the majority of cases involving bonuses observed so far, bonuses are offered by binary option providers acting on a cross-border basis to persuade inexperienced retail clients to speculate in the relevant products, which they may not fully understand.

| (48) | Furthermore, NCAs have voiced concerns about the compliance of providers of binary options with their obligations to give clients fair, clear and not misleading information or act in the best interests of clients (47). NCAs are also concerned about the quality of information provided to retail clients (for example on providers' websites) about how binary options work, and in particular information presented about the risks involved (48). Some examples that are not compliant with the obligation for information to be fair, clear and not misleading and which use techniques drawing clients' attention but not necessarily reflecting the suitability or overall quality of the financial instrument or practice relate to:






  (i) | website content or information presented in a language that is not a national language of the Member State where the services are to be provided, or presented in the official language but based on translations of insufficient quality, such that this is likely to hamper the comprehension of the information presented; and |
| --- | --- | --- |

(48)

Furthermore, NCAs have voiced concerns about the compliance of providers of binary options with their obligations to give clients fair, clear and not misleading information or act in the best interests of clients (47). NCAs are also concerned about the quality of information provided to retail clients (for example on providers' websites) about how binary options work, and in particular information presented about the risks involved (48). Some examples that are not compliant with the obligation for information to be fair, clear and not misleading and which use techniques drawing clients' attention but not necessarily reflecting the suitability or overall quality of the financial instrument or practice relate to:

47

48

(i)

website content or information presented in a language that is not a national language of the Member State where the services are to be provided, or presented in the official language but based on translations of insufficient quality, such that this is likely to hamper the comprehension of the information presented; and

| (ii) | presenting information that emphasises the possible benefits associated with investing in binary options without also giving a fair and prominent indication of the relevant risks, suggesting that these speculative products are suitable or appropriate for all investors or that making a return is a simple task. For example: ‘Trading binary options is as easy as 1-2-3’; ‘Trading has never been so easy’, ‘Start your career as a trader right now’, ‘Gain up to 85 % return every 60 seconds’, ‘95 % return in a few minutes’, and ‘What can you do in 60 seconds? Trade binary options and double your money’ (49). |
| --- | --- |

(ii)

presenting information that emphasises the possible benefits associated with investing in binary options without also giving a fair and prominent indication of the relevant risks, suggesting that these speculative products are suitable or appropriate for all investors or that making a return is a simple task. For example: ‘Trading binary options is as easy as 1-2-3’; ‘Trading has never been so easy’, ‘Start your career as a trader right now’, ‘Gain up to 85 % return every 60 seconds’, ‘95 % return in a few minutes’, and ‘What can you do in 60 seconds? Trade binary options and double your money’ (49).

49

| (49) | The marketing and distribution practices associated with binary options described above confirms the existence of a significant investor protection concern. |
| --- | --- |

(49)

The marketing and distribution practices associated with binary options described above confirms the existence of a significant investor protection concern.

2.6.   The degree to which the financial instrument may threaten investors' confidence in the financial system

The degree to which the financial instrument may threaten investors' confidence in the financial system

| (50) | The combination of the degree of complexity and lack of transparency of binary options, the negative expected return of the product for investors, the lack of reasonable investment objectives; the misleading and aggressive nature of many marketing and distribution activities, conflicts of interest for providers as well as the size of potential detrimental consequences, all contribute to retail clients losing confidence in the financial system. |
| --- | --- |

(50)

The combination of the degree of complexity and lack of transparency of binary options, the negative expected return of the product for investors, the lack of reasonable investment objectives; the misleading and aggressive nature of many marketing and distribution activities, conflicts of interest for providers as well as the size of potential detrimental consequences, all contribute to retail clients losing confidence in the financial system.

| (51) | Given the high probability of clients suffering losses as evidenced in this Decision, investors who had no other experience of investing in financial instruments and had been attracted by the aggressive marketing conducted by binary option providers may conclude that these products are representative of all financial instruments. This concern is even more significant considering the high number of retail clients of binary option providers and the number of complaints in respect of these products. |
| --- | --- |

(51)

Given the high probability of clients suffering losses as evidenced in this Decision, investors who had no other experience of investing in financial instruments and had been attracted by the aggressive marketing conducted by binary option providers may conclude that these products are representative of all financial instruments. This concern is even more significant considering the high number of retail clients of binary option providers and the number of complaints in respect of these products.

3.   APPLICABLE EXISTING REGULATORY REQUIREMENTS UNDER UNION LAW DO NOT ADDRESS THE SIGNIFICANT INVESTOR PROTECTION CONCERN IDENTIFIED (ARTICLE 40(2)(b) OF REGULATION (EU) No 600/2014)

APPLICABLE EXISTING REGULATORY REQUIREMENTS UNDER UNION LAW DO NOT ADDRESS THE SIGNIFICANT INVESTOR PROTECTION CONCERN IDENTIFIED (ARTICLE 40(2)(b) OF REGULATION (EU) No 600/2014)

| (52) | As required under Article 40(2)(b) of Regulation (EU) No 600/2014, ESMA has considered whether existing regulatory requirements in the Union that are applicable to the relevant financial instrument or activity do not address the threat. The applicable existing regulatory requirements are set out in Directive 2014/65/EU, Regulation (EU) No 600/2014 and Regulation (EU) No 1286/2014 of the European Parliament and of the Council (50). In particular, they include: (i) the requirement to provide appropriate information to clients in Article 24(3) and (4) of Directive 2014/65/EU (51); (ii) the suitability and appropriateness requirements in Article 25(2) and (3) of Directive 2014/65/EU (52); (iii) the best execution requirements in Article 27 of Directive 2014/65/EU (53); (iv) the product governance requirements in Articles 16(3) and 24(2) of Directive 2014/65/EU; and (v) the disclosure requirements in Articles 5 to 14 of Regulation (EU) No 1286/2014. |
| --- | --- |

(52)

As required under Article 40(2)(b) of Regulation (EU) No 600/2014, ESMA has considered whether existing regulatory requirements in the Union that are applicable to the relevant financial instrument or activity do not address the threat. The applicable existing regulatory requirements are set out in Directive 2014/65/EU, Regulation (EU) No 600/2014 and Regulation (EU) No 1286/2014 of the European Parliament and of the Council (50). In particular, they include: (i) the requirement to provide appropriate information to clients in Article 24(3) and (4) of Directive 2014/65/EU (51); (ii) the suitability and appropriateness requirements in Article 25(2) and (3) of Directive 2014/65/EU (52); (iii) the best execution requirements in Article 27 of Directive 2014/65/EU (53); (iv) the product governance requirements in Articles 16(3) and 24(2) of Directive 2014/65/EU; and (v) the disclosure requirements in Articles 5 to 14 of Regulation (EU) No 1286/2014.

50

51

52

53

| (53) | Some providers, brokers and trade organisations explicitly mentioned in their responses to the call for evidence that ESMA needs to consider the effects of new legislation before applying any product intervention measures, notably the recent introduction of MiFID II (in particular, the product governance rules) and PRIIPs. |
| --- | --- |

(53)

Some providers, brokers and trade organisations explicitly mentioned in their responses to the call for evidence that ESMA needs to consider the effects of new legislation before applying any product intervention measures, notably the recent introduction of MiFID II (in particular, the product governance rules) and PRIIPs.

| (54) | It should be noted that the scope and content of several applicable regulatory requirements under Directive 2014/65/EU and Regulation (EU) No 600/2014 are similar to those existing under Directive 2004/39/EC (54). While the adoption of Directive 2014/65/EU and Regulation (EU) No 600/2014 aimed to improve several notable aspects of investment services and activities to strengthen investor protection (including through product intervention powers), the improvements in a number of relevant provisions do not address the specific concerns described in this Decision. From the perspective of the risks and the investor detriment addressed in this Decision, several provisions have therefore remained substantially unchanged. |
| --- | --- |

(54)

It should be noted that the scope and content of several applicable regulatory requirements under Directive 2014/65/EU and Regulation (EU) No 600/2014 are similar to those existing under Directive 2004/39/EC (54). While the adoption of Directive 2014/65/EU and Regulation (EU) No 600/2014 aimed to improve several notable aspects of investment services and activities to strengthen investor protection (including through product intervention powers), the improvements in a number of relevant provisions do not address the specific concerns described in this Decision. From the perspective of the risks and the investor detriment addressed in this Decision, several provisions have therefore remained substantially unchanged.

54

| (55) | The requirements to provide appropriate information to clients have been further detailed in Directive 2014/65/EU, with a significant improvement in the area of the disclosure of costs and charges, with investment firms required to provide clients with aggregated information on all costs and charges in connection with the investment services and the financial instruments. However, disclosure-based rules alone — including improved information on costs — are clearly insufficient to tackle the complex risk arising from the marketing, distribution or sale of binary option to retail clients. |
| --- | --- |

(55)

The requirements to provide appropriate information to clients have been further detailed in Directive 2014/65/EU, with a significant improvement in the area of the disclosure of costs and charges, with investment firms required to provide clients with aggregated information on all costs and charges in connection with the investment services and the financial instruments. However, disclosure-based rules alone — including improved information on costs — are clearly insufficient to tackle the complex risk arising from the marketing, distribution or sale of binary option to retail clients.

| (56) | In particular, Article 24(3) of Directive 2014/65/EU requires inter alia investment firms to ensure that all information, including marketing communications, addressed to clients or potential clients is fair, clear and not misleading. Article 24(4) of Directive 2014/65/EU further requires investment firms to give appropriate information in good time to clients and potential clients with regard to the firm and its services, the financial instruments and proposed strategies, execution venues and all costs and related charges, including notably guidance on and warnings of the risks associated with investing in those financial instruments and whether the financial instrument is intended for retail or professional clients. Based on the description of investor protection concerns in relation to binary options (in particular their complexity, riskiness and expected negative return), it is clear that such investor detriment cannot be entirely and adequately controlled through the mere application of these rules. This type of disclosure does not sufficiently draw clients' attention to the concrete consequences (negative expected returns) of investing in these products and does not address concerns inherent to the product's features. |
| --- | --- |

(56)

In particular, Article 24(3) of Directive 2014/65/EU requires inter alia investment firms to ensure that all information, including marketing communications, addressed to clients or potential clients is fair, clear and not misleading. Article 24(4) of Directive 2014/65/EU further requires investment firms to give appropriate information in good time to clients and potential clients with regard to the firm and its services, the financial instruments and proposed strategies, execution venues and all costs and related charges, including notably guidance on and warnings of the risks associated with investing in those financial instruments and whether the financial instrument is intended for retail or professional clients. Based on the description of investor protection concerns in relation to binary options (in particular their complexity, riskiness and expected negative return), it is clear that such investor detriment cannot be entirely and adequately controlled through the mere application of these rules. This type of disclosure does not sufficiently draw clients' attention to the concrete consequences (negative expected returns) of investing in these products and does not address concerns inherent to the product's features.

| (57) | ESMA has also taken into consideration the relevance of the disclosure rules under Regulation (EU) No 1286/2014. Regulation (EU) No 1286/2014 lays down uniform rules on the format and content of the key information document to be provided by manufacturers of packaged retail and insurance based investment products (‘PRIIPs’) to retail investors in order to help them understand and compare the key features and risks of a PRIIP. In particular, Article 5 of Regulation (EU) No 1286/2014, as further implemented in the Commission Delegated Regulation (EU) 2017/653 (55) sets out inter alia a methodology for the presentation of the summary risk indicator and accompanying explanations including whether the retail investor can lose all invested capital or incur additional financial commitments. However, this type of disclosure does not sufficiently draw retail clients' attention to the consequences of investing in binary options in particular. For example, the performance ratio only relates to the individual binary option product and does not provide the client with the overall percentage of retail client accounts that lose money. |
| --- | --- |

(57)

ESMA has also taken into consideration the relevance of the disclosure rules under Regulation (EU) No 1286/2014. Regulation (EU) No 1286/2014 lays down uniform rules on the format and content of the key information document to be provided by manufacturers of packaged retail and insurance based investment products (‘PRIIPs’) to retail investors in order to help them understand and compare the key features and risks of a PRIIP. In particular, Article 5 of Regulation (EU) No 1286/2014, as further implemented in the Commission Delegated Regulation (EU) 2017/653 (55) sets out inter alia a methodology for the presentation of the summary risk indicator and accompanying explanations including whether the retail investor can lose all invested capital or incur additional financial commitments. However, this type of disclosure does not sufficiently draw retail clients' attention to the consequences of investing in binary options in particular. For example, the performance ratio only relates to the individual binary option product and does not provide the client with the overall percentage of retail client accounts that lose money.

55

| (58) | More generally, a disclosure-based regulatory solution is inappropriate for these products, which are in themselves unsuitable for retail clients. |
| --- | --- |

(58)

More generally, a disclosure-based regulatory solution is inappropriate for these products, which are in themselves unsuitable for retail clients.

| (59) | The requirements on suitability have also been strengthened in Directive 2014/65/EU by requiring the delivery of a suitability report to the client and refining the suitability assessment. In particular Article 25(2) of Directive 2014/65/EU requires binary option providers to obtain the necessary information regarding the client's or potential client's knowledge or experience in the investment field relevant inter alia to the specific type of product, the client's or potential client's financial situation including their ability to bear losses, and their investment objectives including their risk tolerance so as to enable the binary option provider to recommend the client or potential client financial products that are suitable for them and are in accordance with their risk tolerance and ability to bear losses. However, the suitability requirements are only applicable to the provision of investment advice and portfolio management and hence they are usually irrelevant in relation to the marketing, distribution or sale of binary options, which mostly occurs via electronic platforms, without the provision of investment advice or portfolio management. |
| --- | --- |

(59)

The requirements on suitability have also been strengthened in Directive 2014/65/EU by requiring the delivery of a suitability report to the client and refining the suitability assessment. In particular Article 25(2) of Directive 2014/65/EU requires binary option providers to obtain the necessary information regarding the client's or potential client's knowledge or experience in the investment field relevant inter alia to the specific type of product, the client's or potential client's financial situation including their ability to bear losses, and their investment objectives including their risk tolerance so as to enable the binary option provider to recommend the client or potential client financial products that are suitable for them and are in accordance with their risk tolerance and ability to bear losses. However, the suitability requirements are only applicable to the provision of investment advice and portfolio management and hence they are usually irrelevant in relation to the marketing, distribution or sale of binary options, which mostly occurs via electronic platforms, without the provision of investment advice or portfolio management.

| (60) | Furthermore, the objectives of the suitability assessment (considering products against clients' knowledge and experience, financial situation and investment objectives) are substantially unchanged compared to the regime in Directive 2004/39/EC and, as evidenced in this Decision, have not been sufficient to avoid the investor detriment identified. |
| --- | --- |

(60)

Furthermore, the objectives of the suitability assessment (considering products against clients' knowledge and experience, financial situation and investment objectives) are substantially unchanged compared to the regime in Directive 2004/39/EC and, as evidenced in this Decision, have not been sufficient to avoid the investor detriment identified.

| (61) | Similarly, the requirements on appropriateness have been strengthened under Directive 2014/65/EU, mainly by narrowing down the list of non-complex products and therefore restricting the scope of products for execution-only services. Article 25(3) of Directive 2014/65/EU requires binary option providers to ask their clients or potential clients to provide information regarding their knowledge and experience in the investment field relevant inter alia to the specific product offered or demanded so as to enable the provider to determine whether that product is appropriate for the client or potential client. If the provider considers the product to be inappropriate for the client or potential client, the provider shall warn them. Binary options qualify as complex financial products and therefore are subject to the appropriateness test pursuant to Article 25(3) of Directive 2014/65/EU. |
| --- | --- |

(61)

Similarly, the requirements on appropriateness have been strengthened under Directive 2014/65/EU, mainly by narrowing down the list of non-complex products and therefore restricting the scope of products for execution-only services. Article 25(3) of Directive 2014/65/EU requires binary option providers to ask their clients or potential clients to provide information regarding their knowledge and experience in the investment field relevant inter alia to the specific product offered or demanded so as to enable the provider to determine whether that product is appropriate for the client or potential client. If the provider considers the product to be inappropriate for the client or potential client, the provider shall warn them. Binary options qualify as complex financial products and therefore are subject to the appropriateness test pursuant to Article 25(3) of Directive 2014/65/EU.

| (62) | However, that was already the case under Directive 2004/39/EC, which provided for substantially the same appropriateness test as the one set out in Directive 2014/65/EU. As evidenced in this Decision and as NCAs' supervisory experience has demonstrated (56), the appropriateness test has not been sufficient to address the investor protection concerns described in this Decision. |
| --- | --- |

(62)

However, that was already the case under Directive 2004/39/EC, which provided for substantially the same appropriateness test as the one set out in Directive 2014/65/EU. As evidenced in this Decision and as NCAs' supervisory experience has demonstrated (56), the appropriateness test has not been sufficient to address the investor protection concerns described in this Decision.

56

| (63) | Both the suitability and appropriateness tests under the existing regulatory requirements therefore are unlikely to prevent retail clients from trading binary options in a way that ensures that the significant investor protection concern is addressed. |
| --- | --- |

(63)

Both the suitability and appropriateness tests under the existing regulatory requirements therefore are unlikely to prevent retail clients from trading binary options in a way that ensures that the significant investor protection concern is addressed.

| (64) | With regard to best execution, most of the best execution rules by themselves already existed under Directive 2004/39/EC. However, these rules have been strengthened under Directive 2014/65/EU. In particular, Article 27 of Directive 2014/65/EU provides that investment firms must take ‘all sufficient steps’ (and no longer ‘all reasonable steps’) to obtain the best possible result for their clients when executing orders. Furthermore, additional information has to be published by market participants and in particular investment firms are required to disclose the top five venues where they executed client orders and the outcomes achieved when executing those orders. |
| --- | --- |

(64)

With regard to best execution, most of the best execution rules by themselves already existed under Directive 2004/39/EC. However, these rules have been strengthened under Directive 2014/65/EU. In particular, Article 27 of Directive 2014/65/EU provides that investment firms must take ‘all sufficient steps’ (and no longer ‘all reasonable steps’) to obtain the best possible result for their clients when executing orders. Furthermore, additional information has to be published by market participants and in particular investment firms are required to disclose the top five venues where they executed client orders and the outcomes achieved when executing those orders.

| (65) | ESMA has considered whether the revised best execution rules could address at least some of the concerns identified in relation to the marketing, distribution or sale of binary options to retail clients. Increased transparency around order execution helps clients to better understand and to evaluate the quality of the firm's execution practices and thus to better assess the quality of the overall service provided to them. In addition, improved information on how firms execute clients' orders, assists clients when monitoring that the firm has taken all sufficient steps to achieve the best possible results for the client. The requirements in relation to best execution also strengthen the best execution standard in relation to OTC products by requiring firms to check the fairness of the price proposed to the client when executing orders or taking decisions to deal in OTC products, including bespoke products. The requirements in Directive 2014/65/EU imply gathering market data to use for the estimation of the price of such products and, where possible, by comparing with similar or comparable products. However, the best execution rules by themselves do not address the risks linked to the product's features, other than execution, and to the wide marketing, distribution or sale of these products to retail clients. |
| --- | --- |

(65)

ESMA has considered whether the revised best execution rules could address at least some of the concerns identified in relation to the marketing, distribution or sale of binary options to retail clients. Increased transparency around order execution helps clients to better understand and to evaluate the quality of the firm's execution practices and thus to better assess the quality of the overall service provided to them. In addition, improved information on how firms execute clients' orders, assists clients when monitoring that the firm has taken all sufficient steps to achieve the best possible results for the client. The requirements in relation to best execution also strengthen the best execution standard in relation to OTC products by requiring firms to check the fairness of the price proposed to the client when executing orders or taking decisions to deal in OTC products, including bespoke products. The requirements in Directive 2014/65/EU imply gathering market data to use for the estimation of the price of such products and, where possible, by comparing with similar or comparable products. However, the best execution rules by themselves do not address the risks linked to the product's features, other than execution, and to the wide marketing, distribution or sale of these products to retail clients.

| (66) | In respect of these substantially similar existing regulatory requirements, ESMA has repeatedly noted the risks described above in investor warnings (57), Questions and Answers (Q&As) (58) and its opinion on ‘MiFID practices for firms selling complex products’ (59). ESMA has also carried out supervisory convergence work through, inter alia, the Joint Group. Despite ESMA's extensive use of its non-binding instruments to ensure a consistent and effective application of the applicable existing regulatory requirements, the investor protection concerns persists. This highlights that, for the reasons set out in this section, these requirements do not address the concern identified. |
| --- | --- |

(66)

In respect of these substantially similar existing regulatory requirements, ESMA has repeatedly noted the risks described above in investor warnings (57), Questions and Answers (Q&As) (58) and its opinion on ‘MiFID practices for firms selling complex products’ (59). ESMA has also carried out supervisory convergence work through, inter alia, the Joint Group. Despite ESMA's extensive use of its non-binding instruments to ensure a consistent and effective application of the applicable existing regulatory requirements, the investor protection concerns persists. This highlights that, for the reasons set out in this section, these requirements do not address the concern identified.

57

58

59

| (67) | ESMA has indeed considered the potential impact of the product governance rules set out in Articles 16(3) and 24(2) of Directive 2014/65/EU. These rules require providers manufacturing financial instruments (including therefore binary options) for sale to clients to ensure that the products are designed to meet the needs of an identified target market of end clients within the relevant category of clients; that the strategy for distribution of the products is compatible with the identified target market; and that the providers take reasonable steps to ensure that the financial instruments are distributed to the identified target market and periodically review the identification of the target market and the performance of the product. Binary options providers shall understand the financial instruments they offer or recommend, assess the compatibility of the instrument with the needs of the client to whom it provides investment services, also taking into account the identified target market of end clients, and ensure that financial instruments are offered or recommended only when it is in the interest of the client. Furthermore, binary options providers that would distribute a financial instrument not manufactured by them shall have appropriate arrangements in place to obtain and understand the relevant information concerning the product approval process, including the identified target market and the characteristics of the product. Binary options providers distributing financial instruments manufactured by providers not subject to the product governance requirements in Directive 2014/65/EU or by third-country providers shall also have appropriate arrangements to obtain sufficient information about the financial instruments. |
| --- | --- |

(67)

ESMA has indeed considered the potential impact of the product governance rules set out in Articles 16(3) and 24(2) of Directive 2014/65/EU. These rules require providers manufacturing financial instruments (including therefore binary options) for sale to clients to ensure that the products are designed to meet the needs of an identified target market of end clients within the relevant category of clients; that the strategy for distribution of the products is compatible with the identified target market; and that the providers take reasonable steps to ensure that the financial instruments are distributed to the identified target market and periodically review the identification of the target market and the performance of the product. Binary options providers shall understand the financial instruments they offer or recommend, assess the compatibility of the instrument with the needs of the client to whom it provides investment services, also taking into account the identified target market of end clients, and ensure that financial instruments are offered or recommended only when it is in the interest of the client. Furthermore, binary options providers that would distribute a financial instrument not manufactured by them shall have appropriate arrangements in place to obtain and understand the relevant information concerning the product approval process, including the identified target market and the characteristics of the product. Binary options providers distributing financial instruments manufactured by providers not subject to the product governance requirements in Directive 2014/65/EU or by third-country providers shall also have appropriate arrangements to obtain sufficient information about the financial instruments.

| (68) | ESMA notes that the product governance requirements are introduced for the first time in Union law under Directive 2014/65/EU. On 2 June 2017 ESMA published the ‘Guidelines on MiFID II product governance requirements’ (60) in which guidance is provided to manufacturers and developers for the assessment of the target market. |
| --- | --- |

(68)

ESMA notes that the product governance requirements are introduced for the first time in Union law under Directive 2014/65/EU. On 2 June 2017 ESMA published the ‘Guidelines on MiFID II product governance requirements’ (60) in which guidance is provided to manufacturers and developers for the assessment of the target market.

60

| (69) | The purpose of the product governance requirements is to narrow down the type of clients (that is, the target market) for which financial instruments would be appropriate and to which they should therefore be distributed. Considering the features of binary options (high degree of losses, negative expected return, short term of contracts, complexity of pricing structures, and in general the lack of reasonable investment objectives), NCAs and ESMA are of the view that no positive retail target market could be determined. Several firms, after implementation of Directive 2014/65/EU and the product governance requirements, still market binary options to the mass market. |
| --- | --- |

(69)

The purpose of the product governance requirements is to narrow down the type of clients (that is, the target market) for which financial instruments would be appropriate and to which they should therefore be distributed. Considering the features of binary options (high degree of losses, negative expected return, short term of contracts, complexity of pricing structures, and in general the lack of reasonable investment objectives), NCAs and ESMA are of the view that no positive retail target market could be determined. Several firms, after implementation of Directive 2014/65/EU and the product governance requirements, still market binary options to the mass market.

| (70) | Despite the existence of these regulatory requirements, evidence shows that retail clients continue and will continue to lose money on binary options. Therefore, this measure is necessary to address the threat. |
| --- | --- |

(70)

Despite the existence of these regulatory requirements, evidence shows that retail clients continue and will continue to lose money on binary options. Therefore, this measure is necessary to address the threat.

4.   COMPETENT AUTHORITIES HAVE NOT TAKEN ACTION TO ADDRESS THE THREAT OR THE ACTIONS TAKEN DO NOT ADEQUATELY ADDRESS THE THREAT (ARTICLE 40(2)(c) OF REGULATION (EU) No 600/2014)

COMPETENT AUTHORITIES HAVE NOT TAKEN ACTION TO ADDRESS THE THREAT OR THE ACTIONS TAKEN DO NOT ADEQUATELY ADDRESS THE THREAT (ARTICLE 40(2)(c) OF REGULATION (EU) No 600/2014)

| (71) | One of the conditions for ESMA to adopt the restriction in this Decision is that a competent authority or competent authorities have not taken action to address the threat or the actions that have been taken do not adequately address the threat. |
| --- | --- |

(71)

One of the conditions for ESMA to adopt the restriction in this Decision is that a competent authority or competent authorities have not taken action to address the threat or the actions that have been taken do not adequately address the threat.

| (72) | The investor protection concerns described in this Decision have led some NCAs to consult on or take national actions aimed at restricting the marketing, distribution or sale of binary options to retail clients:






  (i) | since August 2016, the Financial Services and Markets Authority (‘BE-FSMA’), the Belgian NCA, has in place a ban on the commercialisation of certain OTC derivative contracts (including binary options) to retail clients. In addition, the FSMA has forbidden a number of aggressive or inappropriate distribution techniques such as cold calling via external call centres, inappropriate forms of remuneration and fictitious gifts or bonuses (61); |
| --- | --- | --- |

(72)

The investor protection concerns described in this Decision have led some NCAs to consult on or take national actions aimed at restricting the marketing, distribution or sale of binary options to retail clients:

(i)

since August 2016, the Financial Services and Markets Authority (‘BE-FSMA’), the Belgian NCA, has in place a ban on the commercialisation of certain OTC derivative contracts (including binary options) to retail clients. In addition, the FSMA has forbidden a number of aggressive or inappropriate distribution techniques such as cold calling via external call centres, inappropriate forms of remuneration and fictitious gifts or bonuses (61);

61

| (ii) | since December 2016, in France the legislation sets forth a ban on investment service providers' marketing communications to individuals regarding, inter alia, binary contracts (62); |
| --- | --- |

(ii)

since December 2016, in France the legislation sets forth a ban on investment service providers' marketing communications to individuals regarding, inter alia, binary contracts (62);

62

| (iii) | in Spain since March 2017, the Comisión Nacional del Mercado de Valores (ES-CNMV), the Spanish NCA, requested entities which market, among retail clients established in Spain, CFDs or forex products, with leverage of over 10 times, or binary options, to expressly inform such clients that the ES-CNMV considers that, due to the complexity and the level of risk of these products, their acquisition is not suitable for retail clients. These entities have also been requested to ensure that clients are informed of the cost they would have to assume if they decided to close their position upon purchasing such products and, in the case of CFDs and forex products, that they are warned that, due to leverage, the losses could be greater than the amount initially paid to purchase the relevant product. In addition, they must obtain from the client a handwritten or recorded verbal statement that allows them to prove that the client is aware that the product they are going to acquire is particularly complex and that the ES-CNMV considers that it is not suitable for a retail client. Furthermore, the advertising material used by the entities subject to the CNMV's action to promote these products must always contain a warning about the difficulty of understanding the products and the fact that ES-CNMV considers that these products are not suitable for retail clients because of their complexity and the level of risk they carry. The ES-CNMV also requested CY-CySEC and the UK-FCA to inform binary options providers of these requirements, encouraging providers which provide services in Spain to display the same warning (63); |
| --- | --- |

(iii)

in Spain since March 2017, the Comisión Nacional del Mercado de Valores (ES-CNMV), the Spanish NCA, requested entities which market, among retail clients established in Spain, CFDs or forex products, with leverage of over 10 times, or binary options, to expressly inform such clients that the ES-CNMV considers that, due to the complexity and the level of risk of these products, their acquisition is not suitable for retail clients. These entities have also been requested to ensure that clients are informed of the cost they would have to assume if they decided to close their position upon purchasing such products and, in the case of CFDs and forex products, that they are warned that, due to leverage, the losses could be greater than the amount initially paid to purchase the relevant product. In addition, they must obtain from the client a handwritten or recorded verbal statement that allows them to prove that the client is aware that the product they are going to acquire is particularly complex and that the ES-CNMV considers that it is not suitable for a retail client. Furthermore, the advertising material used by the entities subject to the CNMV's action to promote these products must always contain a warning about the difficulty of understanding the products and the fact that ES-CNMV considers that these products are not suitable for retail clients because of their complexity and the level of risk they carry. The ES-CNMV also requested CY-CySEC and the UK-FCA to inform binary options providers of these requirements, encouraging providers which provide services in Spain to display the same warning (63);

63

| (iv) | in Italy in February 2017, IT-CONSOB issued a specific communication to warn Italian retail clients on the risks associated with binary options; |
| --- | --- |

(iv)

in Italy in February 2017, IT-CONSOB issued a specific communication to warn Italian retail clients on the risks associated with binary options;

| (v) | in February 2018, the Comissão do Mercado de Valores Mobiliários (‘PT-CMVM’) the Portuguese NCA, issued a circular letter stating that investment firms shall refrain from providing trading services related to derivatives linked to cryptocurrencies if they are unable to ensure compliance with all the information obligations towards clients regarding the characteristics of the products; |
| --- | --- |

(v)

in February 2018, the Comissão do Mercado de Valores Mobiliários (‘PT-CMVM’) the Portuguese NCA, issued a circular letter stating that investment firms shall refrain from providing trading services related to derivatives linked to cryptocurrencies if they are unable to ensure compliance with all the information obligations towards clients regarding the characteristics of the products;

| (vi) | on 10 May 2017 the Ελληνική Επιτροπή Κεφαλαιαγοράς (‘EL-HCMC’), the Greek NCA, issued a circular on providing investment services in over-the-counter derivative financial instruments (including forex, CFDs and binary options) through electronic trading platforms (64). |
| --- | --- |

(vi)

on 10 May 2017 the Ελληνική Επιτροπή Κεφαλαιαγοράς (‘EL-HCMC’), the Greek NCA, issued a circular on providing investment services in over-the-counter derivative financial instruments (including forex, CFDs and binary options) through electronic trading platforms (64).

64

| (vii) | in the Czech Republic, the Central National Bank (CZ-CNB), the Czech NCA, issued a statement in October 2015 to warn retail investors about the risks associated with binary options; |
| --- | --- |

(vii)

in the Czech Republic, the Central National Bank (CZ-CNB), the Czech NCA, issued a statement in October 2015 to warn retail investors about the risks associated with binary options;

| (viii) | in the Netherlands, in February 2017 the Autoriteit Financiele Markten (NL-AFM), the Dutch NCA, launched a consultation paper that proposes to make certain products, including binary options, subject to an advertising ban; |
| --- | --- |

(viii)

in the Netherlands, in February 2017 the Autoriteit Financiele Markten (NL-AFM), the Dutch NCA, launched a consultation paper that proposes to make certain products, including binary options, subject to an advertising ban;

| (ix) | in Cyprus, in February 2017 CY-CySEC issued a consultation paper proposing to ban the distribution and trading of binary options in their current form, so as for the final product to take on the characteristics of an on-exchange derivative product (65); |
| --- | --- |

(ix)

in Cyprus, in February 2017 CY-CySEC issued a consultation paper proposing to ban the distribution and trading of binary options in their current form, so as for the final product to take on the characteristics of an on-exchange derivative product (65);

65

| (x) | in December 2016 the UK-FCA anticipating that binary options would be brought within the scope of their regulation from 3 January 2018, consulted on early policy considerations for potential enhanced conduct of business rules for binary options, including potential use of product intervention powers to modify the particular product features of binary options or to place restrictions on the sale and marketing of these products to retail investors. The UK FCA also issued a consumer warning about the risks of investing in binary options on 14 November 2017 (66); and |
| --- | --- |

(x)

in December 2016 the UK-FCA anticipating that binary options would be brought within the scope of their regulation from 3 January 2018, consulted on early policy considerations for potential enhanced conduct of business rules for binary options, including potential use of product intervention powers to modify the particular product features of binary options or to place restrictions on the sale and marketing of these products to retail investors. The UK FCA also issued a consumer warning about the risks of investing in binary options on 14 November 2017 (66); and

66

| (xi) | in December 2016, the AT-FMA, the Austrian NCA, has issued a warning regarding the risks associated with CFDs, rolling spot forex and binary options. |
| --- | --- |

(xi)

in December 2016, the AT-FMA, the Austrian NCA, has issued a warning regarding the risks associated with CFDs, rolling spot forex and binary options.

| (73) | In addition to this, the Finanstilsynet (‘NO-Finanstilsynet’), the Norwegian NCA, published on 26 February 2018 a consultation paper in which they propose, inter alia, a ban on the marketing distribution or sale of binary options to retail clients, as proposed by ESMA in the call for evidence. The consultation period is from 26 February 2018 until 26 March 2018 (67). |
| --- | --- |

(73)

In addition to this, the Finanstilsynet (‘NO-Finanstilsynet’), the Norwegian NCA, published on 26 February 2018 a consultation paper in which they propose, inter alia, a ban on the marketing distribution or sale of binary options to retail clients, as proposed by ESMA in the call for evidence. The consultation period is from 26 February 2018 until 26 March 2018 (67).

67

| (74) | These national measures may address certain concerns in isolation but are insufficient to address the significant investor protection concern described in this Decision on a cross-border level. As evidenced in this Decision, binary options are most commonly marketed, distributed or sold through online trading accounts and on a cross-border basis (68). A national ban would therefore be inadequate to protect retail clients in Member States other than the Member State in which the measure is taken when binary option providers operate in those other Member States as it often occurs (69). |
| --- | --- |

(74)

These national measures may address certain concerns in isolation but are insufficient to address the significant investor protection concern described in this Decision on a cross-border level. As evidenced in this Decision, binary options are most commonly marketed, distributed or sold through online trading accounts and on a cross-border basis (68). A national ban would therefore be inadequate to protect retail clients in Member States other than the Member State in which the measure is taken when binary option providers operate in those other Member States as it often occurs (69).

68

69

| (75) | In the light of the above, for national measures to be effective for retail clients across the Union, it would be necessary for NCAs in all Member States to take action aimed at introducing the common minimum level of investor protection set out in this Decision within a short period of time. Since this has not occurred and given the urgency to address the investor protection concerns identified, ESMA finds it necessary to exercise its temporary product intervention powers. The current fragmented framework provides retail clients with no or a different level of protection across the Union when investing in the same complex products, sometimes from the same providers. |
| --- | --- |

(75)

In the light of the above, for national measures to be effective for retail clients across the Union, it would be necessary for NCAs in all Member States to take action aimed at introducing the common minimum level of investor protection set out in this Decision within a short period of time. Since this has not occurred and given the urgency to address the investor protection concerns identified, ESMA finds it necessary to exercise its temporary product intervention powers. The current fragmented framework provides retail clients with no or a different level of protection across the Union when investing in the same complex products, sometimes from the same providers.

| (76) | In light of the significance and persistence of investor protection concerns, the cross-border nature of these activities, the fact that they affect more than one country and of the evidence of the spread of the distribution of binary options in new jurisdictions leading to the increasing amount of various national measures to address similar investor protection concerns, EU-wide measures are necessary to ensure a minimum common level of protection across the EU. |
| --- | --- |

(76)

In light of the significance and persistence of investor protection concerns, the cross-border nature of these activities, the fact that they affect more than one country and of the evidence of the spread of the distribution of binary options in new jurisdictions leading to the increasing amount of various national measures to address similar investor protection concerns, EU-wide measures are necessary to ensure a minimum common level of protection across the EU.

| (77) | Lastly, the use of supervisory powers by NCAs under Article 69 of Directive 2014/65/EU for example under paragraph (2)(f) (temporary prohibition of professional activity) and (t) (suspension of the marketing or sale for a lack of compliance with the product approval process requirements) would also not address the significant investor protection concerns. A product intervention measure applies to a product, or to an activity relating to that product, and therefore applies to all investment firms providing that product or activity, rather than one particular non-compliance by an individual investment firm. |
| --- | --- |

(77)

Lastly, the use of supervisory powers by NCAs under Article 69 of Directive 2014/65/EU for example under paragraph (2)(f) (temporary prohibition of professional activity) and (t) (suspension of the marketing or sale for a lack of compliance with the product approval process requirements) would also not address the significant investor protection concerns. A product intervention measure applies to a product, or to an activity relating to that product, and therefore applies to all investment firms providing that product or activity, rather than one particular non-compliance by an individual investment firm.

| (78) | By addressing on a Union basis the risks arising from the offer of binary options to retail clients, the intervention measure is more effective than NCAs trying to take action against each firm individually. As noted above, evidence shows that this is a market wide issue as the problem is not limited to the specificities of particular providers and that the key risks are inherent to the product and providers' business model. There are real concerns that the distribution of binary options to retail clients does not allow the provider to act in the best interests of clients or to allow the provision of information that is fair, clear and not misleading. As such, varied individual supervisory actions would not immediately ensure that further harm to retail clients is prevented and would not provide an adequate alternative to the use of ESMA's intervention powers. The cross-border nature of the distribution of binary options, the fact that they affect more than one Member State, the spread of the distribution of binary options in new jurisdictions, and the proliferation of different national measures to address similar investor protection concerns (which, in turn, may contribute to the risk of regulatory arbitrage) lead to the conclusion that Union-wide measures to ensure a common level of protection across the Union are considered necessary. |
| --- | --- |

(78)

By addressing on a Union basis the risks arising from the offer of binary options to retail clients, the intervention measure is more effective than NCAs trying to take action against each firm individually. As noted above, evidence shows that this is a market wide issue as the problem is not limited to the specificities of particular providers and that the key risks are inherent to the product and providers' business model. There are real concerns that the distribution of binary options to retail clients does not allow the provider to act in the best interests of clients or to allow the provision of information that is fair, clear and not misleading. As such, varied individual supervisory actions would not immediately ensure that further harm to retail clients is prevented and would not provide an adequate alternative to the use of ESMA's intervention powers. The cross-border nature of the distribution of binary options, the fact that they affect more than one Member State, the spread of the distribution of binary options in new jurisdictions, and the proliferation of different national measures to address similar investor protection concerns (which, in turn, may contribute to the risk of regulatory arbitrage) lead to the conclusion that Union-wide measures to ensure a common level of protection across the Union are considered necessary.

5.   ESMA'S MEASURE ADDRESSES THE SIGNIFICANT INVESTOR PROTECTION CONCERN IDENTIFIED AND DOES NOT HAVE A DETRIMENTAL EFFECT ON THE EFFICIENCY OF FINANCIAL MARKETS OR ON INVESTORS THAT IS DISPROPORTIONATE TO ITS BENEFITS (ARTICLE 40(2)(a) AND (3)(a) OF REGULATION (EU) No 600/2014)

ESMA'S MEASURE ADDRESSES THE SIGNIFICANT INVESTOR PROTECTION CONCERN IDENTIFIED AND DOES NOT HAVE A DETRIMENTAL EFFECT ON THE EFFICIENCY OF FINANCIAL MARKETS OR ON INVESTORS THAT IS DISPROPORTIONATE TO ITS BENEFITS (ARTICLE 40(2)(a) AND (3)(a) OF REGULATION (EU) No 600/2014)

| (79) | Taking into account the size and nature of the significant investor protection concern identified, ESMA considers it necessary and proportionate to temporarily prohibit the marketing, distribution or sale of binary options to retail clients. This prohibition addresses the concern by affording an appropriate and uniform level of protection to retail clients trading binary options in the Union. It does not have a detrimental effect on the efficiency of financial markets or on investors that is disproportionate to its benefits. |
| --- | --- |

(79)

Taking into account the size and nature of the significant investor protection concern identified, ESMA considers it necessary and proportionate to temporarily prohibit the marketing, distribution or sale of binary options to retail clients. This prohibition addresses the concern by affording an appropriate and uniform level of protection to retail clients trading binary options in the Union. It does not have a detrimental effect on the efficiency of financial markets or on investors that is disproportionate to its benefits.

| (80) | In order to assess how and the degree to which binary options pose a risk to investor protection, ESMA has analysed the distribution of investor returns (70). This analysis identified two important features (71). The first important feature is the high level of risk involved in binary options: a general feature of binary options is that the investor stands to lose the entire amount invested. |
| --- | --- |

(80)

In order to assess how and the degree to which binary options pose a risk to investor protection, ESMA has analysed the distribution of investor returns (70). This analysis identified two important features (71). The first important feature is the high level of risk involved in binary options: a general feature of binary options is that the investor stands to lose the entire amount invested.

70

71

| (81) | The second feature, the negative expected return of the product, is an important source of detriment in this context and applies to all binary options. Unlike financial investments, the contracts are typically very short term and do not offer participation in the growth in value of the underlying. Unlike traditional options, which are often used for hedging purposes, binary options provide a fixed payoff if a specified event occurs. In contrast, the payoff of a typical option is contingent on the change in the price of the underlying once the option is in the money (that is the payoff is variable). This inherent feature of the products limits the value of the product as a hedging tool, whereas other kinds of option have been used to smooth out or limit the price of an asset that a firm or an investor has direct exposure to. |
| --- | --- |

(81)

The second feature, the negative expected return of the product, is an important source of detriment in this context and applies to all binary options. Unlike financial investments, the contracts are typically very short term and do not offer participation in the growth in value of the underlying. Unlike traditional options, which are often used for hedging purposes, binary options provide a fixed payoff if a specified event occurs. In contrast, the payoff of a typical option is contingent on the change in the price of the underlying once the option is in the money (that is the payoff is variable). This inherent feature of the products limits the value of the product as a hedging tool, whereas other kinds of option have been used to smooth out or limit the price of an asset that a firm or an investor has direct exposure to.

| (82) | Furthermore, the typically short term of binary options enables an investor to place many trades sequentially. This combined with the negative expected return results in an increasing likelihood of an investor losing on a cumulative basis the more trades placed. This is a statistical property of repeated negative expected return trading. |
| --- | --- |

(82)

Furthermore, the typically short term of binary options enables an investor to place many trades sequentially. This combined with the negative expected return results in an increasing likelihood of an investor losing on a cumulative basis the more trades placed. This is a statistical property of repeated negative expected return trading.

| (83) | Importantly, the negative-expected return is generally integral to the business model of a provider, as it is generally the source of their expected profits. A binary option obliges the binary option provider to pay the investor a fixed amount if a specified event happens, so for the provider to make an expected profit, the investor must make an expected loss. In addition, it is also possible that providers will impose additional charges. |
| --- | --- |

(83)

Importantly, the negative-expected return is generally integral to the business model of a provider, as it is generally the source of their expected profits. A binary option obliges the binary option provider to pay the investor a fixed amount if a specified event happens, so for the provider to make an expected profit, the investor must make an expected loss. In addition, it is also possible that providers will impose additional charges.

| (84) | Specifically for binary options offered with continual two-way pricing, as the provider will need to offer pricing allowing them to make an expected profit, the provision of this pricing cannot improve expected returns for the investor. Indeed, to the extent investors exit positions before expiry, their expected return is lower than if they hold the position to expiry. The magnitude of this incremental expected loss will vary from provider to provider and case to case, but the expected value to an investor implied by the two-way pricing must typically be negative, just as a product's initial price will imply a negative expected return for the investor. |
| --- | --- |

(84)

Specifically for binary options offered with continual two-way pricing, as the provider will need to offer pricing allowing them to make an expected profit, the provision of this pricing cannot improve expected returns for the investor. Indeed, to the extent investors exit positions before expiry, their expected return is lower than if they hold the position to expiry. The magnitude of this incremental expected loss will vary from provider to provider and case to case, but the expected value to an investor implied by the two-way pricing must typically be negative, just as a product's initial price will imply a negative expected return for the investor.

| (85) | The combined effect illustrates an essential element of binary options due to their negative expected returns: if the retail client makes a very large number of investments, or if a very large number of investors each make a single investment, the probability of making a profit overall is very low. |
| --- | --- |

(85)

The combined effect illustrates an essential element of binary options due to their negative expected returns: if the retail client makes a very large number of investments, or if a very large number of investors each make a single investment, the probability of making a profit overall is very low.

| (86) | The analysis of the return distribution of binary options correlates with data from NCAs in highlighting the degree of high risks for retail clients to lose a substantial portion (often all) of their investment and the negative expected return. These features are also combined with a general complexity and lack of transparency related to the product features of binary options, poor marketing and distribution practices and inherent conflicts of interest. There is no compensation by any corresponding benefit. Together these features constitute a major source of detriment to current and potential retail clients. |
| --- | --- |

(86)

The analysis of the return distribution of binary options correlates with data from NCAs in highlighting the degree of high risks for retail clients to lose a substantial portion (often all) of their investment and the negative expected return. These features are also combined with a general complexity and lack of transparency related to the product features of binary options, poor marketing and distribution practices and inherent conflicts of interest. There is no compensation by any corresponding benefit. Together these features constitute a major source of detriment to current and potential retail clients.

| (87) | A principal reason why the financial sector is highly regulated is that it serves important overarching interests and objectives. Special attention in this context is devoted to the protection of retail clients. The marketing, distribution or sale of an investment product assumes that a product is able, at least potentially, to serve these overarching interests and objectives and does not put at risk in a disproportionate way the need to ensure a minimum level of investor protection. |
| --- | --- |

(87)

A principal reason why the financial sector is highly regulated is that it serves important overarching interests and objectives. Special attention in this context is devoted to the protection of retail clients. The marketing, distribution or sale of an investment product assumes that a product is able, at least potentially, to serve these overarching interests and objectives and does not put at risk in a disproportionate way the need to ensure a minimum level of investor protection.

| (88) | ESMA has reached the limit of the effectiveness of its non-binding tools in this area. In this context, specifically with regard to product governance, ESMA also acknowledges that product governance principles already form part of the financial services supervisory culture in the Union. In November 2013, the European Supervisory Authorities (‘ESAs’) issued a Joint Position on ‘Manufacturers’ Product Oversight and Governance Processes' setting out high-level principles applicable to the oversight and governance processes of financial instruments (72). In February 2014, ESMA issued an opinion on ‘MiFID practices for firms selling complex products’ (73) and, in March 2014, it issued an opinion on ‘Structured Retail Products — Good practices for product governance arrangements’ (74). Furthermore, as of March 2007, guidance setting out product governance principles is in place in the UK (75). |
| --- | --- |

(88)

ESMA has reached the limit of the effectiveness of its non-binding tools in this area. In this context, specifically with regard to product governance, ESMA also acknowledges that product governance principles already form part of the financial services supervisory culture in the Union. In November 2013, the European Supervisory Authorities (‘ESAs’) issued a Joint Position on ‘Manufacturers’ Product Oversight and Governance Processes' setting out high-level principles applicable to the oversight and governance processes of financial instruments (72). In February 2014, ESMA issued an opinion on ‘MiFID practices for firms selling complex products’ (73) and, in March 2014, it issued an opinion on ‘Structured Retail Products — Good practices for product governance arrangements’ (74). Furthermore, as of March 2007, guidance setting out product governance principles is in place in the UK (75).

72

73

74

75

| (89) | Despite these supervisory principles and the regulatory requirements described in this Decision, the detriment in relation to the marketing, distribution or sale of binary options to retail clients had continued to develop over the past years. |
| --- | --- |

(89)

Despite these supervisory principles and the regulatory requirements described in this Decision, the detriment in relation to the marketing, distribution or sale of binary options to retail clients had continued to develop over the past years.

| (90) | ESMA therefore considers that the intervention measures to prohibit the marketing, distribution or sale to retail clients of all types of binary options (whether traded on a trading venue or not) to be appropriate to address risks to investor protection. It should be mentioned that retail clients will be able to acquire similar products in the gambling sphere, when these products are allowed in accordance with the applicable relevant legislation. |
| --- | --- |

(90)

ESMA therefore considers that the intervention measures to prohibit the marketing, distribution or sale to retail clients of all types of binary options (whether traded on a trading venue or not) to be appropriate to address risks to investor protection. It should be mentioned that retail clients will be able to acquire similar products in the gambling sphere, when these products are allowed in accordance with the applicable relevant legislation.

| (91) | Less restrictive measures have been considered, such as the obligation to sell and distribute these products through advisory services. However, due to their features, these products are unsuitable for retail clients. Therefore, such a measure would impose a case-by-case assessment, burdensome for providers and NCAs, the result of which, due to the features of these products, should not actually be significantly different from the measures proposed in this Decision. Another measure considered is to set a minimum term of the binary options. However, the key concerns in relation to this product will not change due to such a measure. In particular, the pricing structure of the product means that, on average, investors will experience negative expected returns without receiving any clear compensating benefits (for example the hedging function served by traditional options). |
| --- | --- |

(91)

Less restrictive measures have been considered, such as the obligation to sell and distribute these products through advisory services. However, due to their features, these products are unsuitable for retail clients. Therefore, such a measure would impose a case-by-case assessment, burdensome for providers and NCAs, the result of which, due to the features of these products, should not actually be significantly different from the measures proposed in this Decision. Another measure considered is to set a minimum term of the binary options. However, the key concerns in relation to this product will not change due to such a measure. In particular, the pricing structure of the product means that, on average, investors will experience negative expected returns without receiving any clear compensating benefits (for example the hedging function served by traditional options).

| (92) | ESMA has also considered the merits of stricter measures, notably the extension of the prohibition to the marketing, distribution or sale of binary options to non-retail clients as well. At this stage, there is no evidence that non-retail clients are targeted by investment firms dealing in these products. Therefore, binary options will remain available to clients classified as professional clients and eligible counterparties who, in any case, are better able to assess the technical features of financial products. This group of clients also includes those retail clients which have sufficient knowledge and experience to request to be classified as professional clients on request. |
| --- | --- |

(92)

ESMA has also considered the merits of stricter measures, notably the extension of the prohibition to the marketing, distribution or sale of binary options to non-retail clients as well. At this stage, there is no evidence that non-retail clients are targeted by investment firms dealing in these products. Therefore, binary options will remain available to clients classified as professional clients and eligible counterparties who, in any case, are better able to assess the technical features of financial products. This group of clients also includes those retail clients which have sufficient knowledge and experience to request to be classified as professional clients on request.

| (93) | ESMA is aware that providers will face potential financial consequences and costs arising from focusing their business and orienting their clients towards other financial instruments and products. |
| --- | --- |

(93)

ESMA is aware that providers will face potential financial consequences and costs arising from focusing their business and orienting their clients towards other financial instruments and products.

| (94) | ESMA considers however that the following benefits gained from addressing the investor protection concern identified outweigh the potential negative impact of the measures:






  (i) | reduction of the mis-selling risk and its related financial consequences, which is a major benefit for retail clients and for the financial markets as whole; |
| --- | --- | --- |

(94)

ESMA considers however that the following benefits gained from addressing the investor protection concern identified outweigh the potential negative impact of the measures:

(i)

reduction of the mis-selling risk and its related financial consequences, which is a major benefit for retail clients and for the financial markets as whole;

| (ii) | reduction of risks linked to regulatory or supervisory arbitrage across different entities and jurisdictions; and |
| --- | --- |

(ii)

reduction of risks linked to regulatory or supervisory arbitrage across different entities and jurisdictions; and

| (iii) | restoring retail clients' confidence in financial markets. |
| --- | --- |

(iii)

restoring retail clients' confidence in financial markets.

| (95) | ESMA's measure will apply from 1 month after publication of this Decision in the Official Journal of the European Union (OJEU). This implies a notice period of 1 month after official publication which aims at balancing retail clients' interest to an immediate reduction of the detriment arising from the current trading of binary options and the need to allow sufficient time to relevant market participants to organise and change their business models in an orderly manner. |
| --- | --- |

(95)

ESMA's measure will apply from 1 month after publication of this Decision in the Official Journal of the European Union (OJEU). This implies a notice period of 1 month after official publication which aims at balancing retail clients' interest to an immediate reduction of the detriment arising from the current trading of binary options and the need to allow sufficient time to relevant market participants to organise and change their business models in an orderly manner.

Official Journal of the European Union

6.   THE MEASURES DO NOT CREATE A RISK OF REGULATORY ARBITRAGE (ARTICLE 40(3)(b) OF REGULATION (EU) No 600/2014)

THE MEASURES DO NOT CREATE A RISK OF REGULATORY ARBITRAGE (ARTICLE 40(3)(b) OF REGULATION (EU) No 600/2014)

| (96) | In light of the nature of the risks identified and the number and type of investors affected and the national measures being proposed by a number of Member States, ESMA's measure will ensure a common minimum approach across the Union. ESMA has also considered the risk that providers currently offering binary options could try to offer products with comparable features. ESMA and NCAs will also closely monitor whether such new distribution trends develop raising similar detrimental consequences for retail clients and whether there are any such efforts by binary options providers to circumvent these intervention measures and will act as necessary. |
| --- | --- |

(96)

In light of the nature of the risks identified and the number and type of investors affected and the national measures being proposed by a number of Member States, ESMA's measure will ensure a common minimum approach across the Union. ESMA has also considered the risk that providers currently offering binary options could try to offer products with comparable features. ESMA and NCAs will also closely monitor whether such new distribution trends develop raising similar detrimental consequences for retail clients and whether there are any such efforts by binary options providers to circumvent these intervention measures and will act as necessary.

| (97) | In addition, ESMA's temporary intervention measures apply to all providers of binary options and any other persons knowingly and intentionally contributing to a breach of the measures that fall under the scope of Regulation (EU) No 600/2014. While the scope of the entities falling under Article 40 of this Regulation in respect of fund management companies ultimately needs to be addressed at a legislative level to improve legal certainty (76), ESMA has considered the scope for regulatory arbitrage. ESMA has determined that, in light of the investor detriment evidenced above, the measures proposed have a sufficiently wide scope of application and are therefore able to address the significant investor protection concern arising from the marketing, distribution or sale of binary options. |
| --- | --- |

(97)

In addition, ESMA's temporary intervention measures apply to all providers of binary options and any other persons knowingly and intentionally contributing to a breach of the measures that fall under the scope of Regulation (EU) No 600/2014. While the scope of the entities falling under Article 40 of this Regulation in respect of fund management companies ultimately needs to be addressed at a legislative level to improve legal certainty (76), ESMA has considered the scope for regulatory arbitrage. ESMA has determined that, in light of the investor detriment evidenced above, the measures proposed have a sufficiently wide scope of application and are therefore able to address the significant investor protection concern arising from the marketing, distribution or sale of binary options.

76

7.   CONSULTATION AND NOTICE (ARTICLE 40(3)(c) AND (4) OF REGULATION (EU) No 600/2014)

CONSULTATION AND NOTICE (ARTICLE 40(3)(c) AND (4) OF REGULATION (EU) No 600/2014)

| (98) | As the proposed measures may, to a limited extent, relate to agricultural commodities derivatives, ESMA has consulted the public bodies competent for the oversight, administration and regulation of physical agricultural markets under Council Regulation (EC) No 1234/2007 (77). ESMA received responses from the Bundesministerium für Ernährung und Landwirtschaft (Germany), the Ministry of Agriculture (Latvia) and the Ministry of Agriculture and Forestry (Finland). These respondents have not raised any objections to the adoption of the proposed measures. |
| --- | --- |

(98)

As the proposed measures may, to a limited extent, relate to agricultural commodities derivatives, ESMA has consulted the public bodies competent for the oversight, administration and regulation of physical agricultural markets under Council Regulation (EC) No 1234/2007 (77). ESMA received responses from the Bundesministerium für Ernährung und Landwirtschaft (Germany), the Ministry of Agriculture (Latvia) and the Ministry of Agriculture and Forestry (Finland). These respondents have not raised any objections to the adoption of the proposed measures.

77

| (99) | ESMA has notified NCAs of this proposed Decision, |
| --- | --- |

(99)

ESMA has notified NCAs of this proposed Decision,

HAS ADOPTED THIS DECISION:

Article 1

Temporary prohibition on binary options in respect of retail clients

1.   The marketing, distribution or sale to retail clients of binary options is prohibited.

2.   For the purposes of paragraph 1, irrespective of whether it is traded on a trading venue, a binary option is a derivative that meets the following conditions:

| (a) | it must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event; |
| --- | --- |

(a)

it must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event;

| (b) | it only provides for payment at its close-out or expiry; |
| --- | --- |

(b)

it only provides for payment at its close-out or expiry;

| (c) | its payment is limited to:






  (i) | a predetermined fixed amount or zero if the underlying of the derivative meets one or more predetermined conditions; and |
| --- | --- | --- |

(c)

its payment is limited to:

(i)

a predetermined fixed amount or zero if the underlying of the derivative meets one or more predetermined conditions; and

| (ii) | a predetermined fixed amount or zero if the underlying of the derivative does not meet one or more predetermined conditions. |
| --- | --- |

(ii)

a predetermined fixed amount or zero if the underlying of the derivative does not meet one or more predetermined conditions.

Article 2

Prohibition of participating in circumvention activities

It shall be prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent the requirements in Article 1, including by acting as a substitute for the binary option provider.

Article 3

Entry into force and application

1.   This Decision enters into force on the day following that of its publication in the Official Journal of the European Union.

2.   This Decision shall apply from 2 July 2018 for a period of 3 months.

Done at Paris, 22 May 2018.

For the Board of Supervisors

Steven MAIJOOR

The Chair

---

(1)  
  OJ L 331, 15.12.2010, p. 84.

1

(2)  
  OJ L 173, 12.6.2014, p. 84.

2

(3)  
  OJ L 87, 31.3.2017, p. 90.

3

(4)  The Joint Group is composed of the representative of the Cypriot NCA ‘Cyprus Securities and Exchange Commission (CY-CySEC)’ as well as the representatives of eight NCAs whose jurisdictions have been affected by the services provided by the Cyprus-based providers. The work of the Joint Group resulted in an action plan to be implemented by CY-CySEC that included inter alia extended investigations into CFD providers as well as thematic reviews of a sample of CY-CySEC authorised firms.

4

(5)  Opinion on MIFID practices for firms selling complex financial products of 7 February 2014 (ESMA/2014/146)

5

(6)  Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA35-36-794). The Q&As were last updated on 31 March 2017.

6

(7)  ESMA's investor warning on ‘risks in investing in complex products’ of 7 February 2014 (https://www.esma.europa.eu/sites/default/files/library/2015/11/investor_warning_-_complex_products_20140207_-_en_0.pdf), and ESMA's investor warning on ‘CFDs, binary options and other speculative products’ of 25 July 2016 (available at: https://www.esma.europa.eu/sites/default/files/library/2016-1166_warning_on_cfds_binary_options_and_other_speculative_products_0.pdf).

7

(8)  For example, the work of the Joint Group has resulted in CY-CySEC adopting a number of enforcement measures aimed at increasing compliance by providers offering speculative products like binary options.

8

(9)  Call for evidence on potential product intervention measures on contracts for differences and binary options to retail clients of 18 January 2018 (ESMA35-43-904).

9

(10)  The number of respondents is lower than this figure since ESMA also received (i) multiple responses from the same respondents (for example a response on each of the proposed measures for CFDs in a separate email), and (ii) duplicative responses from the same respondents.

10

(11)  Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 349).

11

(12)  Typically, the lower of the two monetary payoffs is zero, but this need not be the case. Binary options are distinct from other speculative products sold to retail clients, such as CFDs, in that the payment is of a predetermined monetary amount not directly linked to the size of the change in the price, level or value of the underlying.

12

(13)  For example, investors can bet that the price of the underlying will be within a specified price range or whether the underlying will reach a specified price level at some point during the term of the binary option.

13

(14)  For example, FR-AMF, BE-FSMA, UK-FCA, IT-CONSOB.

14

(15)  For example, UK-FCA.

15

(16)  See recital 35.

16

(17)  IOSCO Report on the IOSCO Survey on Retail OTC Leveraged Products, December 2016 (available at: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD550.pdf).

17

(18)  For example, the Quebec Autorité des Marchés Financiers and the Turkish Capital Markets Board (CMB) (page 2), the Financial Futures Association of Japan (page 6), the US Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) (page 55 of the IOSCO report). In Québec, binary options have not been authorised by the Québec competent authority to be sold to retail investors. The CMB has decided not to allow binary options to be sold to retail investors. In Israel a ban on the sale of binary options to investors has been approved. Available at: http://www.isa.gov.il/sites/ISAEng/1489/1511/Pages/eitonot25102017_1.aspx. The US CFTC's Office of Consumer Outreach and the SEC's Office of Investor Education and Advocacy have issued an investor alert to warn about fraudulent schemes involving binary options and their trading platforms. Available at: http://www.cftc.gov/ConsumerProtection/FraudAwarenessPrevention/CFTCFraudAdvisories/fraudadv_binaryoptions

18

(19)  IOSCO report, page iii.

19

(20)  For example, binary options do not meet the criteria to be regarded as non-complex financial instruments according to the combined reading of Article 25(4) of Directive 2014/65/EU and Article 57 of the Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (OJ L 87, 31.3.2017, p. 1).

20

(21)  In addition to estimating event probabilities based on the market pricing of relevant options, providers may use pricing models such as the Black-Scholes model, or models that include aspects of Black-Scholes pricing. In the Black-Scholes model, time to maturity, initial price of the underlying, and strike price are known variables. The drift of the stochastic process posited in the model is commonly estimated by either or both of the risk-free interest rate and the historical performance of the underlying.

21

(22)  For example, for a binary option offered at a distance from the strike price, the provider may offer the client the right to purchase the option at EUR 22 for a return of EUR 100 for an event that is likely to occur 20 % of the time (equating to a fair value of EUR 20).

22

(23)  If a binary option provider offers continual two-way pricing, a spread can be seen between the price at which clients can buy the binary option from the provider (the ‘buy price’) and the price at which clients can sell the option to the provider (the ‘sell price’). These two prices in general differ from the ‘zero-expected return price’, namely the price at which purchasing the binary option would yield zero expected return for the purchaser, with the sell price typically lower and the buy price typically higher than the zero-expected return price. This spread around the zero-expected-return price illustrates that a retail client will on average make a loss both in entering into a binary option and in exiting it before expiry.

23

(24)  Section 2 of ESMA's Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA35-36-794) as updated on 31 March 2017, discusses some of these conflicts of interest in more detail.

24

(25)  For instance, for a binary option with a 50 % win probability and a return of 80 % of the amount invested if at expiry the option is ‘in-the-money’, an investor faces around a 75 % probability of suffering a cumulative loss over 20 trades. See ESMA's Product Intervention Analysis: Measure on Binary Options, 2018.

25

Product Intervention Analysis: Measure on Binary Options

(26)  Data provided in 2015 by: BG-FSC, CY-CySEC, CZ-CNB, FR-AMF, IE-CBI, IS-FME, LU-CSSF, MT-MFSA, NL-AFM, PT-CMVM, RO-ASF, UK-FCA; data provided in 2017 by: CY-CySEC, CZ-CNB, ES-CNMV, FR-AMF, IE-CBI, LU-CSSF, NL-AFM, MT-MFSA, NO-Finanstilsynet, SK-NBS, UK-FCA.

26

(27)  Given the frequent cross-border dimension of the activity of product providers, this figure may include clients from non-EEA States. With particular regard to the UK, the number of CFD funded client accounts has risen from 657 000 in 2011 to 1 051 000 at end-2016. However, these figures do not exclude dormant client accounts or multiple accounts used by the same retail client. The figures provided by the CY-CySEC have been compiled on the basis of accounts opened in CY-CySEC authorised providers offering these products.

27

(28)  As far as the UK is concerned, this figure does not include non-UK clients of UK authorised firms which in 2016 was estimated at approximately 400 000. For the other Member States which provided the data to ESMA, the figure may include clients from non-EEA States.

28

(29)  CY-CySEC also noted that the figures provided included clients from non-EEA States.

29

(30)  Based on information provided by DE-BaFin in January 2017 covering 2016 data.

30

(31)  See IOSCO report. Although no overall statistics are available, a number of NCAs reported to ESMA that in 2016 the market grew in respect of the number of clients in their jurisdiction. For instance, Poland and Lithuania noted an increase in the value of transactions from binary option providers while Portugal noted a growth in the number of firms providing these services. In addition, two NCAs who had previously noted no real market for these instruments to retail clients in their jurisdiction specifically referred to a growing market in this area.

31

(32)  AT-FMA, BE-FSMA,CY-CySEC, CZ-CNB, DE-BaFin, DK-Finanstilsynet, EE-FSA, EL-HCMC, ES-CNMV, FI-FSA. FR-AMF, IE-CBI, IS-FME, IT-CONSOB, LI-FMA, LT-Lietuvos Bankas, MT-MFSA, NL-AFM, NO-Finanstilsynet, PT-CMVM, RO-ASF, SE-FI, SI-ATVP, UK-FCA.

32

(33)  CZ-CNB, IT-CONSOB.

33

(34)  In Cyprus, 42 applications were received in 2016 compared to 16 in 2015 and 28 in 2014. In the UK, the FCA has received a total of 27 applications from firms seeking to be authorised to offer binary options to retail clients (20 of these applications were from firms seeking variation of authorisations, and 7 were from new authorisation applicants). In this respect, it should be noted that binary options are within the UK-FCA's remit as of 3 January 2018. Before then, they were regulated by the UK Gambling Commission.

34

(35)  IOSCO report page 46.

35

(36)  See ESMA's Product Intervention Analysis: Measure on Binary Options, 2018.

36

Product Intervention Analysis: Measure on Binary Options

(37)  Previously Article 19(5) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC (OJ L 145, 30.4.2004, p. 1).

37

(38)  This risk is possibly magnified by the overconfidence bias which has often been observed in recent behavioural studies. According to a recent study (Li, Mingsheng and Li, Qian and Li, Yan, The Danger of Investor Overconfidence (November 14, 2016) available at SSRN: https://ssrn.com/abstract=2932961) on the effects of investor sentiment on market efficiency around market crashes, investor overconfidence impedes price discovery, increases idiosyncratic risks and dampens responses to the market before market crashes because of the information biases (Peng, Lin, Wei Xiong, 2006. Investor attention, overconfidence and category learning. Journal of Financial Economics 80, 563-602), as well as investor attribution bias (Gervais, S., and T. Odean, 2001. Learning to be Overconfident. The Review of Financial Studies, 14, 1– 27.) and high risk of arbitrage (Benhabit, Jess, Xuewen Liu, and, Penfei Wang, 2016. Sentiments, financial markets, and macroeconomic fluctuations. Journal of Financial Economics 120, 420-443. On the same topic, inter alia see also: Ricciardi, Victor, Chapter 26: The Psychology of Speculation in the Financial Markets (June 1, 2017). Financial Behavior: Players, Services, Products, and Markets. H. Kent Baker, Greg Filbeck, and Victor Ricciardi, editors, 481-498, New York, NY: Oxford University Press, 2017.; N. Barberis and R. H. Thaler (2003), A Survey of Behavioral Finance, in M. Harris, G.M. Constantinides and R. Stultz, ‘Handbook of the Economics of Finance’; D. Dorn and G. Huberman (2005), Talk and action: What individual investors say and what they do; C.H. Pan and M. Statman (2010) Beyond Risk Tolerance: Regret, Overconfidence, and Other Investor Propensities, Working Paper; A. Nosic and M. Weber (2010), How Risky do I invest: The Role of Risk Attitudes, Risk Perceptions and Overconfidence; N. Linciano (2010), How Cognitive Biases and Instability of Preferences in the Portfolio Choices of Retail Investors — Policy Implications of Behavioural Finance, A. Lefevre, and M. Chapman (2017), ‘Behavioural economics and financial consumer protection’, OECD Working Papers on Finance, Insurance and Private Pensions, No 42 OECD Publishing.

38

Investor attention, overconfidence and category learning

Learning to be Overconfident

Sentiments, financial markets, and macroeconomic fluctuations

The Psychology of Speculation in the Financial Markets

A Survey of Behavioral Finance

Talk and action: What individual investors say and what they do

Beyond Risk Tolerance: Regret, Overconfidence, and Other Investor Propensities

How Risky do I invest: The Role of Risk Attitudes, Risk Perceptions and Overconfidence

How Cognitive Biases and Instability of Preferences in the Portfolio Choices of Retail Investors — Policy Implications of Behavioural Finance

(39)  Section 3 of ESMA's Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA35-36-794), as updated on 31 March 2017.

39

(40)  For example, BE-FSMA, ES-CNMV, FR-AMF and IT-CONSOB.

40

(41)  IOSCO report, page 5.

41

(42)  
  Ibidem.

42

Ibidem

(43)  As identified by DE-BaFin and PL-KNF.

43

(44)  For example, the UK-FCA and NO-Finanstilsynet.

44

(45)  Section 6 of ESMA's Q&As relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA35-36-794), as updated on 31 March 2017, states that it is unlikely that a firm offering a bonus that is designed to incentivise retail clients to trade in complex speculative products such as CFDs, binary options and rolling spot forex could demonstrate that it is acting honestly, fairly and professionally and in the best interests of its retail clients.

45

(46)  As described in the IOSCO report, page 32.

46

(47)  For example BE-FSMA, ES-CNMV, FR-AMF, IT-CONSOB.

47

(48)  Section 3 of ESMA's Q&As relating to the provision of CFDs, binary options and other speculative products to retail investors under MiFID (ESMA35-36-794), as updated on 31 March 2017, discusses the information that should be provided to clients and potential clients in more detail.

48

(49)  Section 3 of ESMA's Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA35-36-794), as updated on 31 March 2017.

49

(50)  Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (OJ L 352, 9.12.2014, p. 1).

50

(51)  Previously Article 19(2) and (3) of Directive 2004/39/EC.

51

(52)  Previously Article 19(4) and (5)of Directive 2004/39/EC.

52

(53)  Previously Article 21 of Directive 2004/39/EC.

53

(54)  Directive 2004/39/EC. Annex IV to Directive 2014/65/EU provides a correlation table between the requirements of Directive 2004/39/EC and the requirements of Directive 2014/65/EU and Regulation (EU) No 600/2014.

54

(55)  Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents (OJ L 100, 12.4.2017, p. 1).

55

(56)  For example, IE-CBI expressed concerns on the criteria used to assess knowledge and experience for the purposes of the assessment following their themed inspection (available at: https://www.centralbank.ie/news/article/inspection-finds-75-percent-of-cfd-clients-lost-money). Furthermore, the UK-FCA has observed repeated failings by providers in relation to the adequacy of their appropriateness assessments and related policies and procedures (see above).

56

(57)  ESMA's investor warning on ‘risks in investing in complex products’ of 7 February 2014 (https://www.esma.europa.eu/sites/default/files/library/2015/11/investor_warning_-_complex_products_20140207_-_en_0.pdf), and ESMA's investor warning on ‘CFDs, binary options and other speculative products’ of 25 July 2016 (available at: https://www.esma.europa.eu/sites/default/files/library/2016-1166_warning_on_cfds_binary_options_and_other_speculative_products_0.pdf).

57

(58)  Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA35-36-794) as updated on 31 March 2017.

58

(59)  Opinion on MIFID practices for firms selling complex financial products of 7 February 2014 (ESMA/2014/146).

59

(60)  ESMA Guidelines on MiFID II product governance requirements of 2 June 2017 (ESMA35-43-620).

60

(61)  Regulation of the Financial Services and Markets Authority governing the distribution of certain derivative financial instruments to the clients.

61

(62)  
  Article 72 de LOI no 2016-1691 du 9 décembre 2016 relative à la transparence, à la lutte contre la corruption et à la modernisation de la vie économique.

62

Article 72 de LOI no

(63)  The intended measures were announced by ES-CNMV's communication Measures on the Marketing of CFDs and Other Speculative Products to Retail Investors, dated 21 March 2017.

63

(64)  HCMC Circular No 56/10.5.2017.

64

(65)  Available at: https://www.cysec.gov.cy/CMSPages/GetFile.aspx?guid=ebf53e28-2bb7-4494-bb3a-4cced2e3c8ba

65

(66)  UK-FCA, ‘Consumer warning on the risks of investing in binary options,’
  14 November 2017. Available at: https://www.fca.org.uk/news/news-stories/consumer-warning-about-risks-investing-binary-options

66

(67)  Available at: https://www.finanstilsynet.no/contentassets/455795d40fe4445f88a3b71b35079c94/horingsnotat---produktintervensjon.pdf

67

(68)  For example, UK-FCA, IT-CONSOB, ES-CNMV, BE-FSMA, FR-AMF, DE- BaFin, DK- Finanstilsynet, LU-CSSF, NL-AFM.

68

(69)  See recital 34(vi).

69

(70)  See ESMA's Product Intervention Analysis: Measure on Binary Options, 2018.

70

Product Intervention Analysis: Measure on Binary Options

(71)  
  Ibidem.

71

Ibidem

(72)  Joint Position on ‘Manufacturers' Product Oversight and Governance Processes’ (JC-2013-77).

72

(73)  Opinion on MiFID practices for firms selling complex products of 7 February 2014 (ESMA/2014/146). This opinion specifically included references to CFDs and binary options.

73

(74)  Opinion on Structured Retail Products — Good practices for product governance arrangements of 27 March 2014 (ESMA/2014/332).

74

(75)  
  ‘
  The Responsibilities of Providers and Distributors for the Fair Treatment of Customers
  ’. Available at: https://www.handbook.fca.org.uk/handbook/document/RPPD_FCA_20130401.pdf. The guidance is linked to the UK's Principles for Businesses (PRIN). Available at: https://www.handbook.fca.org.uk/handbook/document/rppd/RPPD_Full_20180103.pdf

75

The Responsibilities of Providers and Distributors for the Fair Treatment of Customers

(76)  ESMA has emphasised the risk of regulatory arbitrage in its opinion on Impact of the exclusion of fund management companies from the scope of the MiFIR Intervention Powers of 12 January 2017 (ESMA50-1215332076-23), in which it has expressed concerns for the risk of regulatory arbitrage and the potential reduction in effectiveness of future intervention measures arising from the exclusion of certain entities from the scope of the relevant measures (UCITS management companies and Alternative investment fund managers). The Commission has proposed amendments to enhance legal certainty in this respect by amending Regulation (EU) No 600/2014 (COM(2017)536/948972).

76

(77)  Council Regulation (EC) No 1234/2007 of 22 October 2007 establishing a common organisation of agricultural markets and on specific provisions for certain agricultural products (Single CMO Regulation) (OJ L 299, 16.11.2007, p. 1).

77

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| 1.6.2018 | EN | Official Journal of the European Union | L 136/50 |
| --- | --- | --- | --- |

1.6.2018

EN

Official Journal of the European Union

L 136/50

---

EUROPEAN SECURITIES AND MARKETS AUTHORITY DECISION (EU) 2018/796

of 22 May 2018

to temporarily restrict contracts for differences in the Union in accordance with Article 40 of Regulation (EU) No 600/2014 of the European Parliament and of the Council

THE EUROPEAN SECURITIES AND MARKETS AUTHORITY BOARD OF SUPERVISORS,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (1), and in particular Articles 9(5), 43(2) and 44(1) thereof,

Having regard to Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (2), and in particular Article 40 thereof,

Having regard to Commission Delegated Regulation (EU) 2017/567 of 18 May 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions (3), and in particular Article 19 thereof,

Whereas:

1.   INTRODUCTION

INTRODUCTION

| (1) | In recent years the European Securities and Markets Authority (ESMA) and several national competent authorities (NCAs) have observed a rapid increase in the marketing, distribution or sale of contracts for differences (CFDs) to retail clients across the Union. CFDs are inherently risky and complex products and are often traded speculatively. ESMA and NCAs have also observed that their offer to retail clients has been increasingly featured by aggressive marketing techniques as well as a lack of transparent information that do not allow retail clients to understand the risks underlying these products. ESMA and NCAs have expressed widespread concerns on the increasing number of retail clients trading in these products and losing their money. These concerns are also supported by the numerous complaints received from retail clients across the EU who have suffered significant detriment when trading CFDs. |
| --- | --- |

(1)

In recent years the European Securities and Markets Authority (ESMA) and several national competent authorities (NCAs) have observed a rapid increase in the marketing, distribution or sale of contracts for differences (CFDs) to retail clients across the Union. CFDs are inherently risky and complex products and are often traded speculatively. ESMA and NCAs have also observed that their offer to retail clients has been increasingly featured by aggressive marketing techniques as well as a lack of transparent information that do not allow retail clients to understand the risks underlying these products. ESMA and NCAs have expressed widespread concerns on the increasing number of retail clients trading in these products and losing their money. These concerns are also supported by the numerous complaints received from retail clients across the EU who have suffered significant detriment when trading CFDs.

| (2) | These significant investor protection concerns have led ESMA to take a number of non-binding actions. As of June 2015, ESMA has been coordinating the work of a Joint Group established to tackle issues related to a number of Cyprus-based providers offering CFDs, binary options and other speculative products to retail clients on a cross-border basis across the Union (4). Furthermore, since July 2015, ESMA has been coordinating a task force composed of ESMA and NCAs whose work aims at monitoring the offer of CFDs and binary options to the retail mass market as well as to foster uniform supervisory approaches in this area across the Union. ESMA has also promoted supervisory convergence in the Union in respect of the offer of CFDs to retail clients through the issuance of an opinion (5) as well as a number of Questions and Answers (Q&As) (6) pursuant to Article 29 of Regulation (EU) No 1095/2010. Finally, ESMA has published warnings (7) in which it highlighted its concerns in respect of the risks posed by the uncontrolled offer of inter alia CFDs and binary options to retail clients. Although these actions had some positive effects (8), ESMA considers that the significant investor protection concerns persist. |
| --- | --- |

(2)

These significant investor protection concerns have led ESMA to take a number of non-binding actions. As of June 2015, ESMA has been coordinating the work of a Joint Group established to tackle issues related to a number of Cyprus-based providers offering CFDs, binary options and other speculative products to retail clients on a cross-border basis across the Union (4). Furthermore, since July 2015, ESMA has been coordinating a task force composed of ESMA and NCAs whose work aims at monitoring the offer of CFDs and binary options to the retail mass market as well as to foster uniform supervisory approaches in this area across the Union. ESMA has also promoted supervisory convergence in the Union in respect of the offer of CFDs to retail clients through the issuance of an opinion (5) as well as a number of Questions and Answers (Q&As) (6) pursuant to Article 29 of Regulation (EU) No 1095/2010. Finally, ESMA has published warnings (7) in which it highlighted its concerns in respect of the risks posed by the uncontrolled offer of inter alia CFDs and binary options to retail clients. Although these actions had some positive effects (8), ESMA considers that the significant investor protection concerns persist.

4

5

6

7

8

| (3) | On 18 January 2018, ESMA launched a call for evidence on its potential product intervention measures on the marketing, distribution or sale of CFDs and binary options to retail clients (9) (the ‘call for evidence’). The call for evidence was closed on 5 February 2018. ESMA received almost 18 500 (10) responses. Among those responses, 82 were from providers, trade organisations, stock exchanges and brokers involved in the CFD and/or binary option business, 10 were from consumer representatives and the remaining responses came from individuals. A vast majority of the responses from individuals were facilitated and channelled via CFD and/or binary option providers. The call for evidence disclosed a general concern from the first category of respondents and, in particular product providers, as to the decrease of revenues which the proposed measures may cause as well as the costs related to their implementation. Furthermore, concerns were also expressed by a large number of individual respondents mainly about proposed leverage limits being too low. |
| --- | --- |

(3)

On 18 January 2018, ESMA launched a call for evidence on its potential product intervention measures on the marketing, distribution or sale of CFDs and binary options to retail clients (9) (the ‘call for evidence’). The call for evidence was closed on 5 February 2018. ESMA received almost 18 500 (10) responses. Among those responses, 82 were from providers, trade organisations, stock exchanges and brokers involved in the CFD and/or binary option business, 10 were from consumer representatives and the remaining responses came from individuals. A vast majority of the responses from individuals were facilitated and channelled via CFD and/or binary option providers. The call for evidence disclosed a general concern from the first category of respondents and, in particular product providers, as to the decrease of revenues which the proposed measures may cause as well as the costs related to their implementation. Furthermore, concerns were also expressed by a large number of individual respondents mainly about proposed leverage limits being too low.

9

10

| (4) | ESMA has duly considered such concerns. However, after balancing them against the significant investor protection concern identified, which was further confirmed by the responses received from consumer representatives and individuals in support of the proposed measures and calling for more stringent measures, ESMA considers it necessary to impose a temporary restriction on the marketing, distribution or sale of CFDs to retail clients in accordance with Article 40 of Regulation (EU) No 600/2014. |
| --- | --- |

(4)

ESMA has duly considered such concerns. However, after balancing them against the significant investor protection concern identified, which was further confirmed by the responses received from consumer representatives and individuals in support of the proposed measures and calling for more stringent measures, ESMA considers it necessary to impose a temporary restriction on the marketing, distribution or sale of CFDs to retail clients in accordance with Article 40 of Regulation (EU) No 600/2014.

| (5) | A measure imposed under Article 40 of Regulation (EU) No 600/2014 must be reviewed at appropriate intervals and at least every 3 months. In reviewing this measure, ESMA will tackle any evasive practices that may emerge. If the measure is not renewed after 3 months, it will expire. |
| --- | --- |

(5)

A measure imposed under Article 40 of Regulation (EU) No 600/2014 must be reviewed at appropriate intervals and at least every 3 months. In reviewing this measure, ESMA will tackle any evasive practices that may emerge. If the measure is not renewed after 3 months, it will expire.

| (6) | For the avoidance of doubt, terms used in this Decision have the same meaning as in Directive 2014/65/EU of the European Parliament and of the Council (11) and Regulation (EU) No 600/2014, including the definition of derivatives. |
| --- | --- |

(6)

For the avoidance of doubt, terms used in this Decision have the same meaning as in Directive 2014/65/EU of the European Parliament and of the Council (11) and Regulation (EU) No 600/2014, including the definition of derivatives.

11

| (7) | ESMA's temporary restriction fulfils the conditions set out in Article 40 of Regulation (EU) No 600/2014 for the reasons explained below. |
| --- | --- |

(7)

ESMA's temporary restriction fulfils the conditions set out in Article 40 of Regulation (EU) No 600/2014 for the reasons explained below.

2.   DESCRIPTION OF THE CFD RETAIL MARKET AND THE EXISTENCE OF A SIGNIFICANT INVESTOR PROTECTION CONCERN (ARTICLE 40(2)(a) of REGULATION (EU) No 600/2014)

DESCRIPTION OF THE CFD RETAIL MARKET AND THE EXISTENCE OF A SIGNIFICANT INVESTOR PROTECTION CONCERN (ARTICLE 40(2)(a) of REGULATION (EU) No 600/2014)

| (8) | This Decision relates to CFDs that are cash settled derivative contracts, the purpose of which is to give the holder an exposure, which can be long or short, to fluctuations in the price, level or value of an underlying. These CFDs include, inter alia, rolling spot forex products and financial spread bets. This Decision does not relate to options, futures, swaps, and forward-rate agreements. |
| --- | --- |

(8)

This Decision relates to CFDs that are cash settled derivative contracts, the purpose of which is to give the holder an exposure, which can be long or short, to fluctuations in the price, level or value of an underlying. These CFDs include, inter alia, rolling spot forex products and financial spread bets. This Decision does not relate to options, futures, swaps, and forward-rate agreements.

| (9) | Some respondents to the call for evidence asked for further clarification on the scope of the measure. Some of the respondents suggested that ESMA's definition of CFDs in the call for evidence explicitly excluded securitised derivatives from the scope of the measure whereas others flagged the similarities between CFDs and other investment products and asked to apply the same measures. |
| --- | --- |

(9)

Some respondents to the call for evidence asked for further clarification on the scope of the measure. Some of the respondents suggested that ESMA's definition of CFDs in the call for evidence explicitly excluded securitised derivatives from the scope of the measure whereas others flagged the similarities between CFDs and other investment products and asked to apply the same measures.

| (10) | ESMA confirms that only CFDs are in scope of this Decision. Warrants and turbo certificates are not in scope. ESMA acknowledges that there are similarities between CFDs and warrants and turbo certificates but the products also differ in various respects. ESMA will closely monitor whether similar detrimental consequences for retail clients develop on a pan-European basis and will act as necessary. Securitised derivatives that are CFDs are not explicitly excluded from the definition of CFDs. Although ESMA is not aware of securitised CFDs at this stage, the wrapper of a security and the tradability on a trading venue do not change the key characteristics of a CFD. In case such products were to be launched, these products would be in scope of this Decision. |
| --- | --- |

(10)

ESMA confirms that only CFDs are in scope of this Decision. Warrants and turbo certificates are not in scope. ESMA acknowledges that there are similarities between CFDs and warrants and turbo certificates but the products also differ in various respects. ESMA will closely monitor whether similar detrimental consequences for retail clients develop on a pan-European basis and will act as necessary. Securitised derivatives that are CFDs are not explicitly excluded from the definition of CFDs. Although ESMA is not aware of securitised CFDs at this stage, the wrapper of a security and the tradability on a trading venue do not change the key characteristics of a CFD. In case such products were to be launched, these products would be in scope of this Decision.

| (11) | CFDs that offer leveraged exposure to price, level or value changes in underlying asset classes have existed as a speculative short-term investment product provided to a niche client base in some jurisdictions for several years. However, in recent years, a large number of NCAs have raised concerns about the widening distribution of CFDs to a mass retail market, despite these products being complex and inappropriate for the large majority of retail clients. On the basis of information provided by a number of NCAs, ESMA has also observed an increase in the levels of leverage being offered in such products to retail clients and in the levels of client losses arising from investing in these products (12). These concerns are amplified by often aggressive marketing techniques and inappropriate practices from providers marketing, distributing or selling CFDs, such as the offering of payments, monetary or non-monetary benefits or through inappropriate disclosures of risks. |
| --- | --- |

(11)

CFDs that offer leveraged exposure to price, level or value changes in underlying asset classes have existed as a speculative short-term investment product provided to a niche client base in some jurisdictions for several years. However, in recent years, a large number of NCAs have raised concerns about the widening distribution of CFDs to a mass retail market, despite these products being complex and inappropriate for the large majority of retail clients. On the basis of information provided by a number of NCAs, ESMA has also observed an increase in the levels of leverage being offered in such products to retail clients and in the levels of client losses arising from investing in these products (12). These concerns are amplified by often aggressive marketing techniques and inappropriate practices from providers marketing, distributing or selling CFDs, such as the offering of payments, monetary or non-monetary benefits or through inappropriate disclosures of risks.

niche

12

| (12) | These concerns have materialised across several jurisdictions, with a majority of retail clients in those jurisdictions typically losing money as evidenced by a number of NCAs (13). In an attempt to address these concerns, some NCAs took measures in this area (14). However, in light inter alia of the cross-border nature of these activities, ESMA's temporary restriction is the most appropriate and efficient tool to address the significant investor protection concerns and to ensure a common minimum level of investor protection throughout the Union, in compliance with the conditions in Article 40 of Regulation (EU) No 600/2014. |
| --- | --- |

(12)

These concerns have materialised across several jurisdictions, with a majority of retail clients in those jurisdictions typically losing money as evidenced by a number of NCAs (13). In an attempt to address these concerns, some NCAs took measures in this area (14). However, in light inter alia of the cross-border nature of these activities, ESMA's temporary restriction is the most appropriate and efficient tool to address the significant investor protection concerns and to ensure a common minimum level of investor protection throughout the Union, in compliance with the conditions in Article 40 of Regulation (EU) No 600/2014.

13

14

| (13) | The condition referred to in Article 40(2)(a) of Regulation (EU) No 600/2014 is that there must exist inter alia a significant investor protection concern. In determining whether there exists a significant investor protection concern, ESMA has assessed the relevance of the criteria and factors listed in Article 19(2) of the Delegated Regulation (EU) 2017/567. After taking the relevant criteria and factors into consideration, ESMA has concluded that there is a significant investor protection concern for the following reasons. |
| --- | --- |

(13)

The condition referred to in Article 40(2)(a) of Regulation (EU) No 600/2014 is that there must exist inter alia a significant investor protection concern. In determining whether there exists a significant investor protection concern, ESMA has assessed the relevance of the criteria and factors listed in Article 19(2) of the Delegated Regulation (EU) 2017/567. After taking the relevant criteria and factors into consideration, ESMA has concluded that there is a significant investor protection concern for the following reasons.

2.1.   The degree of complexity and transparency of CFDs

The degree of complexity and transparency of CFDs

| (14) | CFDs are complex products (15), typically not traded on a trading venue. The pricing, trading terms, and settlement of such products is not standardised, impairing retail clients' ability to understand the terms of the product. In addition, CFD providers often require clients to acknowledge that the reference prices used to determine the value of a CFD may differ from the price available in the respective market where the underlying is traded, making it difficult for retail clients to check and verify the accuracy of the prices received from the provider. |
| --- | --- |

(14)

CFDs are complex products (15), typically not traded on a trading venue. The pricing, trading terms, and settlement of such products is not standardised, impairing retail clients' ability to understand the terms of the product. In addition, CFD providers often require clients to acknowledge that the reference prices used to determine the value of a CFD may differ from the price available in the respective market where the underlying is traded, making it difficult for retail clients to check and verify the accuracy of the prices received from the provider.

15

| (15) | The costs and charges applicable to trading in CFDs are complex and lack transparency for retail clients. In particular, retail clients typically find it difficult to understand and assess the expected performance of a CFD, also taking into account the complexity arising from the impact of transaction fees on such performance. Transaction fees in CFDs are normally applied to the full notional value of the trade and investors consequently incur higher transaction fees relative to their invested funds at higher levels of leverage. Transaction fees are usually deducted from the initial margin deposited by a client and high leverage can lead to a situation where the client, at the moment of opening a CFD, observes a significant loss on their trading account, caused by the application of high transaction fees. Since transaction fees at higher leverage will erode more of the client's initial margin, clients will be required to earn more money from the trade itself to realise a profit. This lowers the client's chances of realising a profit net of transaction fees, exposing clients to a greater risk of loss. |
| --- | --- |

(15)

The costs and charges applicable to trading in CFDs are complex and lack transparency for retail clients. In particular, retail clients typically find it difficult to understand and assess the expected performance of a CFD, also taking into account the complexity arising from the impact of transaction fees on such performance. Transaction fees in CFDs are normally applied to the full notional value of the trade and investors consequently incur higher transaction fees relative to their invested funds at higher levels of leverage. Transaction fees are usually deducted from the initial margin deposited by a client and high leverage can lead to a situation where the client, at the moment of opening a CFD, observes a significant loss on their trading account, caused by the application of high transaction fees. Since transaction fees at higher leverage will erode more of the client's initial margin, clients will be required to earn more money from the trade itself to realise a profit. This lowers the client's chances of realising a profit net of transaction fees, exposing clients to a greater risk of loss.

| (16) | In addition to transaction fees, spreads and various other financing costs and charges may be applied (16). These include commissions (a general commission or a commission on each trade, or on opening and closing a CFD account) and/or account management fees. Financing charges are also usually applied to keep a CFD open, such as daily or overnight charges, to which a mark-up can also be added. The number and complexity of the various costs and charges and their impact on clients' trading performance contribute to the lack of sufficient transparency in relation to CFDs in order to enable a retail client to make an informed investment decision. |
| --- | --- |

(16)

In addition to transaction fees, spreads and various other financing costs and charges may be applied (16). These include commissions (a general commission or a commission on each trade, or on opening and closing a CFD account) and/or account management fees. Financing charges are also usually applied to keep a CFD open, such as daily or overnight charges, to which a mark-up can also be added. The number and complexity of the various costs and charges and their impact on clients' trading performance contribute to the lack of sufficient transparency in relation to CFDs in order to enable a retail client to make an informed investment decision.

16

| (17) | Another complexity arises from the use of stop loss orders. This product feature may give retail clients the misleading impression that a stop loss order guarantees execution at the price which they have set (the level of the stop loss). However, stop loss orders do not guarantee a protection level but the triggering of a ‘market order’ when the CFD price reaches the price set by the client. Accordingly, the price received by the client (execution price) can be different from the price at which the stop loss was set (17). While stop losses are not unique to CFDs, leverage increases the sensitivity of an investor's margin to price movements of the underlying increasing the risk of risk of sudden losses and means that traditional trading controls such as stop-losses are insufficient to manage investor protection concern. |
| --- | --- |

(17)

Another complexity arises from the use of stop loss orders. This product feature may give retail clients the misleading impression that a stop loss order guarantees execution at the price which they have set (the level of the stop loss). However, stop loss orders do not guarantee a protection level but the triggering of a ‘market order’ when the CFD price reaches the price set by the client. Accordingly, the price received by the client (execution price) can be different from the price at which the stop loss was set (17). While stop losses are not unique to CFDs, leverage increases the sensitivity of an investor's margin to price movements of the underlying increasing the risk of risk of sudden losses and means that traditional trading controls such as stop-losses are insufficient to manage investor protection concern.

17

| (18) | Another key complexity associated with CFDs may arise from the relevant underlying market. For instance, with FX trading, clients speculate on one currency against another. If neither of these currencies is the currency used by the client to open a CFD position, any return received by the client will be dependent on the measures taken by the client to assess the movement of these three currencies. This suggests that a high level of knowledge of all the currencies involved is required to successfully navigate the complexities of such currency trading. Retail clients do not normally have such knowledge. |
| --- | --- |

(18)

Another key complexity associated with CFDs may arise from the relevant underlying market. For instance, with FX trading, clients speculate on one currency against another. If neither of these currencies is the currency used by the client to open a CFD position, any return received by the client will be dependent on the measures taken by the client to assess the movement of these three currencies. This suggests that a high level of knowledge of all the currencies involved is required to successfully navigate the complexities of such currency trading. Retail clients do not normally have such knowledge.

| (19) | CFDs with cryptocurrencies as an underlying raise separate and significant concerns. Cryptocurrencies are a relatively immature asset class that pose major risks for investors. ESMA and other regulators have repeatedly warned (18) of the risks involved with investing in cryptocurrencies. For CFDs on cryptocurrencies many of these concerns remain present. This is because retail clients typically do not understand the risks involved when speculating on an extremely volatile and relatively immature asset class, which are exacerbated by trading on margin, as it requires clients to react in a very short time period. Due to the specific characteristics of cryptocurrencies as an asset class the measures in this Decision will be closely monitored and reviewed if deemed necessary. |
| --- | --- |

(19)

CFDs with cryptocurrencies as an underlying raise separate and significant concerns. Cryptocurrencies are a relatively immature asset class that pose major risks for investors. ESMA and other regulators have repeatedly warned (18) of the risks involved with investing in cryptocurrencies. For CFDs on cryptocurrencies many of these concerns remain present. This is because retail clients typically do not understand the risks involved when speculating on an extremely volatile and relatively immature asset class, which are exacerbated by trading on margin, as it requires clients to react in a very short time period. Due to the specific characteristics of cryptocurrencies as an asset class the measures in this Decision will be closely monitored and reviewed if deemed necessary.

18

| (20) | The high level of complexity, poor degree of transparency, nature of risks and type of underlying confirm that a significant investor protection concern exists in respect of these CFDs. |
| --- | --- |

(20)

The high level of complexity, poor degree of transparency, nature of risks and type of underlying confirm that a significant investor protection concern exists in respect of these CFDs.

2.2.   The particular features or components of CFDs

The particular features or components of CFDs

| (21) | The main feature of CFDs is their ability to operate on leverage. In general, whilst leverage can increase the possible profit for clients, it can also increase the possible losses. NCAs have noted that leverage levels applied to CFDs across the Union range from 3:1 to 500:1 (19). As far as retail clients are concerned, the application of leverage may increase the probability of a larger loss to a greater extent than the probability of a larger gain for the reasons set out below. |
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(21)

The main feature of CFDs is their ability to operate on leverage. In general, whilst leverage can increase the possible profit for clients, it can also increase the possible losses. NCAs have noted that leverage levels applied to CFDs across the Union range from 3:1 to 500:1 (19). As far as retail clients are concerned, the application of leverage may increase the probability of a larger loss to a greater extent than the probability of a larger gain for the reasons set out below.

19

| (22) | Leverage affects an investment's performance by increasing the impact of transaction fees incurred by retail clients (20). |
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(22)

Leverage affects an investment's performance by increasing the impact of transaction fees incurred by retail clients (20).

20

| (23) | Another risk related to trading in leveraged products is linked to the interaction of high leverage and the practice of automatic margin close-out. Under commonly applied contractual terms, CFD providers are granted the discretion to close-out a client's account once the client's net equity reaches a specified percentage of the initial margin that the client is required to pay in order to open a CFD position(s) (21). |
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(23)

Another risk related to trading in leveraged products is linked to the interaction of high leverage and the practice of automatic margin close-out. Under commonly applied contractual terms, CFD providers are granted the discretion to close-out a client's account once the client's net equity reaches a specified percentage of the initial margin that the client is required to pay in order to open a CFD position(s) (21).

21

| (24) | The interaction between high leverage and automatic margin close-out is that it increases the probability that a client's position will be closed automatically by the CFD provider in a short timeframe or a client has to post additional margin in the hope of turning around a losing position. High leverage increases the probability that the client has insufficient margin to support their open CFDs by making the client's position(s) sensitive to small fluctuations in the price of the underlying to the client's disadvantage. |
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(24)

The interaction between high leverage and automatic margin close-out is that it increases the probability that a client's position will be closed automatically by the CFD provider in a short timeframe or a client has to post additional margin in the hope of turning around a losing position. High leverage increases the probability that the client has insufficient margin to support their open CFDs by making the client's position(s) sensitive to small fluctuations in the price of the underlying to the client's disadvantage.

| (25) | ESMA observes that in market practice margin close-out appears to have been introduced by CFD providers mainly to allow them to more easily manage client exposures and the provider's credit risk by closing out a client's position before the client had insufficient funds to cover their current exposure. Automatic margin close-out also provides a degree of protection for clients as it reduces, but does not eliminate, the risk that the client (particularly at high levels of leverage) loses all or more than their initial margin. |
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(25)

ESMA observes that in market practice margin close-out appears to have been introduced by CFD providers mainly to allow them to more easily manage client exposures and the provider's credit risk by closing out a client's position before the client had insufficient funds to cover their current exposure. Automatic margin close-out also provides a degree of protection for clients as it reduces, but does not eliminate, the risk that the client (particularly at high levels of leverage) loses all or more than their initial margin.

| (26) | Some NCAs reported to ESMA (22) that the level at which automatic margin close-out is applied is inconsistent across CFD providers (23). CFD providers with clients who typically trade at lower value order sizes, and who typically act as direct counterparty to the clients' trades, have previously set the margin close-out rule between 0 and 30 % of initial margin required. By eroding the client's funds close to 0, the provider is placing the client at increased risk of losing more money than they had invested. Some NCAs also observe that it is standard market practice to apply margin close-out on a per account basis (24). This means that minimum margin requirements are applied based on the combined margin required for all a client's open positions connected to the CFD account, including across different asset classes. This allows profitable positions to offset losing positions across the client's account. |
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(26)

Some NCAs reported to ESMA (22) that the level at which automatic margin close-out is applied is inconsistent across CFD providers (23). CFD providers with clients who typically trade at lower value order sizes, and who typically act as direct counterparty to the clients' trades, have previously set the margin close-out rule between 0 and 30 % of initial margin required. By eroding the client's funds close to 0, the provider is placing the client at increased risk of losing more money than they had invested. Some NCAs also observe that it is standard market practice to apply margin close-out on a per account basis (24). This means that minimum margin requirements are applied based on the combined margin required for all a client's open positions connected to the CFD account, including across different asset classes. This allows profitable positions to offset losing positions across the client's account.

22

23

24

| (27) | A related risk of leverage is that it places clients at risk of losing more money than they have invested. This is a key risk which retail clients may not understand, even despite written warnings. The margin posted by a client is posted as collateral to support the client's position. If the price of the underlying, for example, moves against the client's position in excess of the initial margin posted (25), the client can be liable for losses in excess of the funds in their CFD trading account, even after the closure of all their other open CFD positions. Some NCAs have reported to ESMA that a number of retail clients lost significant sums of money during the de-pegging of the Swiss Franc in January 2015 (26). Many retail clients were unaware that they could lose more money than they had invested (27). |
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(27)

A related risk of leverage is that it places clients at risk of losing more money than they have invested. This is a key risk which retail clients may not understand, even despite written warnings. The margin posted by a client is posted as collateral to support the client's position. If the price of the underlying, for example, moves against the client's position in excess of the initial margin posted (25), the client can be liable for losses in excess of the funds in their CFD trading account, even after the closure of all their other open CFD positions. Some NCAs have reported to ESMA that a number of retail clients lost significant sums of money during the de-pegging of the Swiss Franc in January 2015 (26). Many retail clients were unaware that they could lose more money than they had invested (27).

25

26

27

| (28) | Trading at high leverage levels also increases the impact of ‘gapping’ during periods of significant market volatility (for example the Sterling flash crash and Swiss franc de-pegging). Gapping occurs when there is a sudden movement in the price of the underlying. Gapping is not unique to CFDs, but the risks related to such events are exacerbated by high leverage. If gapping occurs, the client on the losing side may be unable to close an open CFD at their preferred price and can result in significant client losses (28) when trading at high leverage. In the case of the Swiss franc shock in 2015 for example, this has led to retail clients losing significantly more than the sum initially invested (29). |
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(28)

Trading at high leverage levels also increases the impact of ‘gapping’ during periods of significant market volatility (for example the Sterling flash crash and Swiss franc de-pegging). Gapping occurs when there is a sudden movement in the price of the underlying. Gapping is not unique to CFDs, but the risks related to such events are exacerbated by high leverage. If gapping occurs, the client on the losing side may be unable to close an open CFD at their preferred price and can result in significant client losses (28) when trading at high leverage. In the case of the Swiss franc shock in 2015 for example, this has led to retail clients losing significantly more than the sum initially invested (29).

28

29

| (29) | The often high levels of leverage offered to retail clients, the volatility of certain underlying assets, together with the application of transaction costs which impact the investment's performance, can result in rapid changes to a client's investment position. This results in the client having to take swift action to manage the risk exposure by posting additional margin to avoid the position being automatically closed out. In such instances, high leverage can lead to large losses for retail clients over a very short time span and exacerbates the risk that clients will lose more than the funds paid to trade CFDs. |
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(29)

The often high levels of leverage offered to retail clients, the volatility of certain underlying assets, together with the application of transaction costs which impact the investment's performance, can result in rapid changes to a client's investment position. This results in the client having to take swift action to manage the risk exposure by posting additional margin to avoid the position being automatically closed out. In such instances, high leverage can lead to large losses for retail clients over a very short time span and exacerbates the risk that clients will lose more than the funds paid to trade CFDs.

| (30) | The above factors confirm that a significant investor protection concern exists in respect of these CFDs. |
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(30)

The above factors confirm that a significant investor protection concern exists in respect of these CFDs.

2.3.   The size of potential detrimental consequences and the degree of disparity between the expected return or profit for investors and the risk of loss

The size of potential detrimental consequences and the degree of disparity between the expected return or profit for investors and the risk of loss

| (31) | The following information provided by NCAs to ESMA indicates that the number of retail clients investing in CFDs as well as the number of providers offering these products across the Union has grown:






  (i) | most NCAs reported to ESMA that they have observed providers offering CFDs to retail clients that are authorised in their jurisdiction (30). Nearly all NCAs reported to ESMA that CFD providers passporting from other Member States offer CFDs in their jurisdiction (31). Some NCAs also mentioned CFD providers using branches or tied agents to passport to host jurisdictions (32); |
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(31)

The following information provided by NCAs to ESMA indicates that the number of retail clients investing in CFDs as well as the number of providers offering these products across the Union has grown:

(i)

most NCAs reported to ESMA that they have observed providers offering CFDs to retail clients that are authorised in their jurisdiction (30). Nearly all NCAs reported to ESMA that CFD providers passporting from other Member States offer CFDs in their jurisdiction (31). Some NCAs also mentioned CFD providers using branches or tied agents to passport to host jurisdictions (32);

30

31

32

| (ii) | the Cyprus Securities and Exchange Commission (‘CY-CySEC’), the Cypriot NCA, and the Financial Conduct Authority (‘UK-FCA’), the UK NCA, have reported an increase in the number of CFD providers specialising in the sale of these products to retail clients on a cross border basis from 103 to 138 providers in Cyprus and from 117 to 143 providers in the UK between 2016 and 2017; |
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(ii)

the Cyprus Securities and Exchange Commission (‘CY-CySEC’), the Cypriot NCA, and the Financial Conduct Authority (‘UK-FCA’), the UK NCA, have reported an increase in the number of CFD providers specialising in the sale of these products to retail clients on a cross border basis from 103 to 138 providers in Cyprus and from 117 to 143 providers in the UK between 2016 and 2017;

| (iii) | the UK-FCA, has also noted an increase in the number of requests for authorisation for investment firms offering CFDs. Newer markets such as Greece, Hungary, Portugal and Slovakia have also noted an increase in applications for authorisation for investment firms offering CFDs (33). |
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(iii)

the UK-FCA, has also noted an increase in the number of requests for authorisation for investment firms offering CFDs. Newer markets such as Greece, Hungary, Portugal and Slovakia have also noted an increase in applications for authorisation for investment firms offering CFDs (33).

33

| (32) | Active client numbers in relation to these products are fluid due to the relatively short life span of CFD client accounts and the cross-border nature of activities. Based on data gathered by ESMA from a number of NCAs (34), ESMA estimates that the number of retail clients' trading accounts from EEA-based CFD and binary option providers increased from 1,5 million in 2015 (35) to approximately 2,2 million in 2017 (36). |
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(32)

Active client numbers in relation to these products are fluid due to the relatively short life span of CFD client accounts and the cross-border nature of activities. Based on data gathered by ESMA from a number of NCAs (34), ESMA estimates that the number of retail clients' trading accounts from EEA-based CFD and binary option providers increased from 1,5 million in 2015 (35) to approximately 2,2 million in 2017 (36).

34

35

36

| (33) | retail clients complaints data also indicates ongoing consumer concerns in this area (37). |
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(33)

retail clients complaints data also indicates ongoing consumer concerns in this area (37).

37

| (34) | NCAs (38) have reported to ESMA the concern that as some national markets become restricted due to national measures (for example Belgium (39) and France (40)) CFD providers will seek out clients in other Member States. |
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(34)

NCAs (38) have reported to ESMA the concern that as some national markets become restricted due to national measures (for example Belgium (39) and France (40)) CFD providers will seek out clients in other Member States.

38

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40

| (35) | Specific studies carried out by the following NCAs into investor outcomes for retail clients investing in CFDs show that a majority of retail clients in these Member States investing in these products lose money from trading:






  (i) | CY-CySEC conducted analysis of a sample of retail client accounts (approximately 290 000 client accounts) of 18 major CFD providers for the period from 1 January 2017 to 31 August 2017. It was found that on average, 76 % of client accounts made a loss overall over that particular period, with around 24 % of client accounts in profit. On average, the loss per account was around EUR 1 600; |
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(35)

Specific studies carried out by the following NCAs into investor outcomes for retail clients investing in CFDs show that a majority of retail clients in these Member States investing in these products lose money from trading:

(i)

CY-CySEC conducted analysis of a sample of retail client accounts (approximately 290 000 client accounts) of 18 major CFD providers for the period from 1 January 2017 to 31 August 2017. It was found that on average, 76 % of client accounts made a loss overall over that particular period, with around 24 % of client accounts in profit. On average, the loss per account was around EUR 1 600;

| (ii) | the Comisión Nacional del Mercado de Valores (‘ES-CNMV’), the Spanish NCA, found that approximately 82 % of retail clients (41) have lost money overall in a 21-month period between early 2015 and late 2016. The average loss per retail client was EUR 4 700 (42); |
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(ii)

the Comisión Nacional del Mercado de Valores (‘ES-CNMV’), the Spanish NCA, found that approximately 82 % of retail clients (41) have lost money overall in a 21-month period between early 2015 and late 2016. The average loss per retail client was EUR 4 700 (42);

41

42

| (iii) | the Autorité des marchés financiers (‘FR-AMF’), the French NCA, found that more than 89 % of retail investors lost money overall over a 4-year period from 2009 to 2013, and that the average loss per retail client was EUR 10 887 (43). In addition, data provided by the FR-AMF from the office of the Ombudsman identified that the average overall loss per annnum for complainants of CFDs was EUR 15 207 in 2016. Furthermore, the Ombudsman noted that particularly in 2016 and 2017, the practices of regulated providers became even more aggressive and increasingly targeted investors likely to make significant payments. Several complaints regarding incidents of harassment and manipulation were from applicants with substantial savings. Figures for 2016 mediations before the French Ombudsman appear to support this, with the average amount recovered increasing to EUR 11 938 and half of all cases concerning an amount above EUR 5 000. The losses incurred by some investors topped EUR 90 000, and the cumulative losses in cases handled on the merits, that is involving authorised companies, exceeded EUR 1 million. The FR-AMF also found that retail investors who trade the most (by number of trades, average trade size or cumulative volume) lose the most. The same applies to those who continue over time, indicating there is no learning curve; |
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(iii)

the Autorité des marchés financiers (‘FR-AMF’), the French NCA, found that more than 89 % of retail investors lost money overall over a 4-year period from 2009 to 2013, and that the average loss per retail client was EUR 10 887 (43). In addition, data provided by the FR-AMF from the office of the Ombudsman identified that the average overall loss per annnum for complainants of CFDs was EUR 15 207 in 2016. Furthermore, the Ombudsman noted that particularly in 2016 and 2017, the practices of regulated providers became even more aggressive and increasingly targeted investors likely to make significant payments. Several complaints regarding incidents of harassment and manipulation were from applicants with substantial savings. Figures for 2016 mediations before the French Ombudsman appear to support this, with the average amount recovered increasing to EUR 11 938 and half of all cases concerning an amount above EUR 5 000. The losses incurred by some investors topped EUR 90 000, and the cumulative losses in cases handled on the merits, that is involving authorised companies, exceeded EUR 1 million. The FR-AMF also found that retail investors who trade the most (by number of trades, average trade size or cumulative volume) lose the most. The same applies to those who continue over time, indicating there is no learning curve;

43

| (iv) | the Hrvatska agencija za nadzor financijskih usluga (‘HR-HANFA’), the Croatian NCA, carried out a loss-per-client study for one Croatian investment firm offering CFDs to its clients. The study assessed 267 retail clients' losses or gains for the trading period from January to September 2016. HR-HANFA found that total client losses for the period was approximately EUR 1 017 900, while total retail client gains were approximately EUR 420 000; |
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(iv)

the Hrvatska agencija za nadzor financijskih usluga (‘HR-HANFA’), the Croatian NCA, carried out a loss-per-client study for one Croatian investment firm offering CFDs to its clients. The study assessed 267 retail clients' losses or gains for the trading period from January to September 2016. HR-HANFA found that total client losses for the period was approximately EUR 1 017 900, while total retail client gains were approximately EUR 420 000;

| (v) | the Central Bank of Ireland (‘IE-CBI’), the Irish NCA, carried out a thematic review in 2015 which showed that 75 % of retail clients trading CFDs during 2013 and 2014 suffered losses with the average loss amongst those clients being EUR 6 900. A follow-up review of a sample of the largest CFD providers in Ireland found that in the 2-year period from 2015 to 2016, 74 % of retail clients lost money with an average loss of EUR 2 700 (44); |
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(v)

the Central Bank of Ireland (‘IE-CBI’), the Irish NCA, carried out a thematic review in 2015 which showed that 75 % of retail clients trading CFDs during 2013 and 2014 suffered losses with the average loss amongst those clients being EUR 6 900. A follow-up review of a sample of the largest CFD providers in Ireland found that in the 2-year period from 2015 to 2016, 74 % of retail clients lost money with an average loss of EUR 2 700 (44);

44

| (vi) | the work of the Commisione Nazionale per le Società e la Borsa (‘IT-CONSOB’), the Italian NCA, conducted during 2016 has shown that in 2014-2015 78 % of the Italian retail clients of a specific CFD provider lost money investing in CFDs and 75 % lost money investing in rolling spot forex, with the average loss being EUR 2 800. It was also found that there is a positive correlation between the number of trades carried out by retail clients and the amount of losses suffered. A subsequent survey conducted for IT-CONSOB in March 2017 on five Italian branches of providers operating in CFDs found that in 2016 retail client losses were up to 83 % with the average loss per client of approximately EUR 7 000; |
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(vi)

the work of the Commisione Nazionale per le Società e la Borsa (‘IT-CONSOB’), the Italian NCA, conducted during 2016 has shown that in 2014-2015 78 % of the Italian retail clients of a specific CFD provider lost money investing in CFDs and 75 % lost money investing in rolling spot forex, with the average loss being EUR 2 800. It was also found that there is a positive correlation between the number of trades carried out by retail clients and the amount of losses suffered. A subsequent survey conducted for IT-CONSOB in March 2017 on five Italian branches of providers operating in CFDs found that in 2016 retail client losses were up to 83 % with the average loss per client of approximately EUR 7 000;

| (vii) | the Komisja Nadzoru Finansowego (‘PL-KNF’), the Polish NCA, conducted in Q1 2017 a study (45) based on the data provided by 10 investment firms offering CFDs (based on 130 399 client accounts of which 38 691 active accounts) and concluded that 79,28 % of the clients lost money in 2016. The average result was a loss per client of PLN 10 060. Moreover, a similar study conducted by PL-KNF in Q1 2018 based on the data provided by seven investment firms offering CFDs in Poland in 2017 (177 883 client accounts, of which 40 209 active accounts) showed that 79,69 % of the clients lost money in 2017. The average result was a loss per client of PLN 12 156 in 2017. The percentage of active clients (46) losing money amounted to 81 % (2012), 81 % (2013), 80 % (2014), 82 % (2015), 79 % (2016) and 80 % (2017); |
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(vii)

the Komisja Nadzoru Finansowego (‘PL-KNF’), the Polish NCA, conducted in Q1 2017 a study (45) based on the data provided by 10 investment firms offering CFDs (based on 130 399 client accounts of which 38 691 active accounts) and concluded that 79,28 % of the clients lost money in 2016. The average result was a loss per client of PLN 10 060. Moreover, a similar study conducted by PL-KNF in Q1 2018 based on the data provided by seven investment firms offering CFDs in Poland in 2017 (177 883 client accounts, of which 40 209 active accounts) showed that 79,69 % of the clients lost money in 2017. The average result was a loss per client of PLN 12 156 in 2017. The percentage of active clients (46) losing money amounted to 81 % (2012), 81 % (2013), 80 % (2014), 82 % (2015), 79 % (2016) and 80 % (2017);

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| (viii) | a study carried out by the Commission de Surveillance du Secteur Financier (‘LU-CSSF’), the Luxembourgish NCA,stated in September 2017 that from two LU-CSSF authorised providers providing CFDs the average losses per retail client are EUR 4 500 and approximately EUR 1 700; |
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(viii)

a study carried out by the Commission de Surveillance du Secteur Financier (‘LU-CSSF’), the Luxembourgish NCA,stated in September 2017 that from two LU-CSSF authorised providers providing CFDs the average losses per retail client are EUR 4 500 and approximately EUR 1 700;

| (ix) | an analysis carried out by the UK-FCA in 2014 on a sample of non-advised retail client accounts from 8 CFD providers, suggested that 82 % of retail clients lost money on these products and that the average outcome was a loss of GBP 2 200 per retail client over a year. Information received during the UK-FCA's December 2016 consultation process also found a correlation between higher leverage levels, and increased probability and size of losses (47). A further study by the UK-FCA in 2016/2017 in relation to advisory and discretionary services provided for CFDs over a 12-month period found further evidence of poor outcomes for retail clients. The review found that within the population of firms offering CFDs on an advisory and discretionary services, 76 % of retail clients lost money, experiencing an average loss of GBP 9 000. Even when the profitable retail clients were taken into consideration, on average, a typical retail client investing under an advisory and discretionary managed account lost around GBP 4 100 (48); |
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(ix)

an analysis carried out by the UK-FCA in 2014 on a sample of non-advised retail client accounts from 8 CFD providers, suggested that 82 % of retail clients lost money on these products and that the average outcome was a loss of GBP 2 200 per retail client over a year. Information received during the UK-FCA's December 2016 consultation process also found a correlation between higher leverage levels, and increased probability and size of losses (47). A further study by the UK-FCA in 2016/2017 in relation to advisory and discretionary services provided for CFDs over a 12-month period found further evidence of poor outcomes for retail clients. The review found that within the population of firms offering CFDs on an advisory and discretionary services, 76 % of retail clients lost money, experiencing an average loss of GBP 9 000. Even when the profitable retail clients were taken into consideration, on average, a typical retail client investing under an advisory and discretionary managed account lost around GBP 4 100 (48);

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| (x) | the Comissãdo Mercado de Valores Mobiliários (PT-CMVM), the Portuguese NCA, found that on a notional value of investors' position of EUR 44 700 million in 2016 and EUR 44 200 million in 2017, the associated losses for retail investors were EUR 66,8 million and EUR 47,7 million for the years 2016 and 2017 respectively. |
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(x)

the Comissãdo Mercado de Valores Mobiliários (PT-CMVM), the Portuguese NCA, found that on a notional value of investors' position of EUR 44 700 million in 2016 and EUR 44 200 million in 2017, the associated losses for retail investors were EUR 66,8 million and EUR 47,7 million for the years 2016 and 2017 respectively.

| (36) | In addition, a study carried out by the Finanstilsynet (‘NO-Finanstilsynet’), the Norwegian NCA, on the trading results of 6 CFD providers' clients in 2016. The study included approximately 1 000 retail clients (49) trading in CFDs over 1 to 2 years with January 2014 as the start date and the end date ranging between December 2014 and December 2015 (on average a trading period of 1,5 years). It showed that 82 % of those clients lost money with an average loss per client of EUR 29 000. The average transaction costs relative to a client's equity was 37 % (due to high leverage and frequent trading) (50). |
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(36)

In addition, a study carried out by the Finanstilsynet (‘NO-Finanstilsynet’), the Norwegian NCA, on the trading results of 6 CFD providers' clients in 2016. The study included approximately 1 000 retail clients (49) trading in CFDs over 1 to 2 years with January 2014 as the start date and the end date ranging between December 2014 and December 2015 (on average a trading period of 1,5 years). It showed that 82 % of those clients lost money with an average loss per client of EUR 29 000. The average transaction costs relative to a client's equity was 37 % (due to high leverage and frequent trading) (50).

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50

| (37) | Notably, the consistent pattern of average losses for retail clients in CFDs over time and across countries comes despite positive returns for retail clients in other financial products in many of the years in question. The percentage of retail clients losing money in the AMF study referred to in recital 35(iii) in each year from 2009 to 2013 is remarkably consistent, despite varying annual returns in stock market and commodity indices over the same period, for example (51). The persistence of the pattern of losses for retail clients in CFDs indicates a structural feature of the return profile, in contrast to positive historical returns on (long term) investments in other financial products such as equity investment funds. |
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(37)

Notably, the consistent pattern of average losses for retail clients in CFDs over time and across countries comes despite positive returns for retail clients in other financial products in many of the years in question. The percentage of retail clients losing money in the AMF study referred to in recital 35(iii) in each year from 2009 to 2013 is remarkably consistent, despite varying annual returns in stock market and commodity indices over the same period, for example (51). The persistence of the pattern of losses for retail clients in CFDs indicates a structural feature of the return profile, in contrast to positive historical returns on (long term) investments in other financial products such as equity investment funds.

51

| (38) | These studies paint a stark picture of the significant investor protection concern raised by the offer of these CFDs to retail clients. |
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(38)

These studies paint a stark picture of the significant investor protection concern raised by the offer of these CFDs to retail clients.

2.4.   The type of clients involved

The type of clients involved

| (39) | CFDs are marketed, distributed or sold to both retail and professional clients. However, retail (unlike professional) clients do not normally possess the experience, knowledge and expertise to make investment decisions which properly assess the risks they incur with regard to the complex CFDs that are restricted by this Decision. |
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(39)

CFDs are marketed, distributed or sold to both retail and professional clients. However, retail (unlike professional) clients do not normally possess the experience, knowledge and expertise to make investment decisions which properly assess the risks they incur with regard to the complex CFDs that are restricted by this Decision.

marketed

| (40) | Indeed, one study in a Member State has indicated that the highest maximum leverage levels were often offered to retail clients, whilst professional clients and eligible counterparties were offered lower maximum leverage levels (52). Given the evidence of losses observed by ESMA in retail client accounts described in this Decision, it is clear that a significant investor protection concern exists in respect of the unrestricted marketing, distribution or sale of CFDs to this category of client. |
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(40)

Indeed, one study in a Member State has indicated that the highest maximum leverage levels were often offered to retail clients, whilst professional clients and eligible counterparties were offered lower maximum leverage levels (52). Given the evidence of losses observed by ESMA in retail client accounts described in this Decision, it is clear that a significant investor protection concern exists in respect of the unrestricted marketing, distribution or sale of CFDs to this category of client.

52

2.5.   Marketing and distribution activities in relation to CFDs

Marketing and distribution activities in relation to CFDs

| (41) | Although CFDs are complex products, they are offered to retail clients most commonly via electronic trading platforms, without the provision of investment advice or portfolio management. An assessment of appropriateness is required in such cases pursuant to Article 25(3) of Directive 2014/65/EU (53). However, this assessment does not prevent CFD providers or their clients or potential clients proceeding with a transaction, subject to a simple warning to the client. This can occur where the client has provided no or insufficient information to the provider as to their knowledge and experience in the investment field relevant to the specific type of product as well as where the provider has concluded that the product is not appropriate for the client. This enables retail clients to access products, such as CFDs, which, by their features, should not be distributed to them (54). |
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(41)

Although CFDs are complex products, they are offered to retail clients most commonly via electronic trading platforms, without the provision of investment advice or portfolio management. An assessment of appropriateness is required in such cases pursuant to Article 25(3) of Directive 2014/65/EU (53). However, this assessment does not prevent CFD providers or their clients or potential clients proceeding with a transaction, subject to a simple warning to the client. This can occur where the client has provided no or insufficient information to the provider as to their knowledge and experience in the investment field relevant to the specific type of product as well as where the provider has concluded that the product is not appropriate for the client. This enables retail clients to access products, such as CFDs, which, by their features, should not be distributed to them (54).

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54

| (42) | The UK-FCA observed repeated failings by the approach of CFD providers to completing the appropriateness assessment, including inadequacies in the assessment itself, inadequate risk warnings to retail clients who failed the appropriateness assessments and lack of establishment of a process to assess whether clients who fail the appropriateness assessment, but who nonetheless wish to trade CFDs, should be allowed to proceed with CFD transactions (55). Revisiting this issue in late 2016, the UK-FCA found that a significant number of firms had failed to address these failings following the previous feedback provided to them (56). |
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(42)

The UK-FCA observed repeated failings by the approach of CFD providers to completing the appropriateness assessment, including inadequacies in the assessment itself, inadequate risk warnings to retail clients who failed the appropriateness assessments and lack of establishment of a process to assess whether clients who fail the appropriateness assessment, but who nonetheless wish to trade CFDs, should be allowed to proceed with CFD transactions (55). Revisiting this issue in late 2016, the UK-FCA found that a significant number of firms had failed to address these failings following the previous feedback provided to them (56).

55

56

| (43) | Furthermore, NCAs have voiced concerns about CFD providers' compliance with their obligations to give clients clear and not misleading information, or act in the best interests of clients (57). NCAs have also voiced concerns regarding the inadequate performance of appropriateness tests (58) in practice and inadequate warnings to clients when they fail the appropriateness test (59). Examples of these bad practices are described in and gave rise to ESMA's Questions and Answers relating to the provision of CFDs and other speculative products to retail clients under MiFID (60) |
| --- | --- |

(43)

Furthermore, NCAs have voiced concerns about CFD providers' compliance with their obligations to give clients clear and not misleading information, or act in the best interests of clients (57). NCAs have also voiced concerns regarding the inadequate performance of appropriateness tests (58) in practice and inadequate warnings to clients when they fail the appropriateness test (59). Examples of these bad practices are described in and gave rise to ESMA's Questions and Answers relating to the provision of CFDs and other speculative products to retail clients under MiFID (60)

57

58

59

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| (44) | NCAs have also observed aggressive marketing practices as well as misleading marketing communications in this sector of the market (61). They include, for example, the use of sponsorship arrangements or affiliations with major sports teams, which give the misleading impression that complex and speculative products such as CFDs are suitable for the retail mass market by promoting general brand name awareness. Furthermore, they also include the use of misleading statements such as ‘Trading has never been so easy’, ‘Start your career as a trader right now’, ‘Earn GBP 13 000 in 24 Hours! Get started’ (62). |
| --- | --- |

(44)

NCAs have also observed aggressive marketing practices as well as misleading marketing communications in this sector of the market (61). They include, for example, the use of sponsorship arrangements or affiliations with major sports teams, which give the misleading impression that complex and speculative products such as CFDs are suitable for the retail mass market by promoting general brand name awareness. Furthermore, they also include the use of misleading statements such as ‘Trading has never been so easy’, ‘Start your career as a trader right now’, ‘Earn GBP 13 000 in 24 Hours! Get started’ (62).

61

62

| (45) | In the context of the development of the CFD Q&As, some NCAs have reported to ESMA that CFD providers often fail to adequately disclose the risks of these products (63). In particular, some NCAs (64) found that CFD providers did not adequately describe the potential for rapid losses that could exceed their invested funds. |
| --- | --- |

(45)

In the context of the development of the CFD Q&As, some NCAs have reported to ESMA that CFD providers often fail to adequately disclose the risks of these products (63). In particular, some NCAs (64) found that CFD providers did not adequately describe the potential for rapid losses that could exceed their invested funds.

63

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| (46) | Also in this context, some NCAs have also raised concerns about the ‘churning’ nature of some CFD providers' business models (65). Because the average life span of a client account can be relatively short, this can place a certain pressure on providers to maintain a steady stream of new clients, which could incentivise providers to adopt aggressive marketing and sales techniques that are not in the retail client's best interests. |
| --- | --- |

(46)

Also in this context, some NCAs have also raised concerns about the ‘churning’ nature of some CFD providers' business models (65). Because the average life span of a client account can be relatively short, this can place a certain pressure on providers to maintain a steady stream of new clients, which could incentivise providers to adopt aggressive marketing and sales techniques that are not in the retail client's best interests.

65

| (47) | A common feature of marketing and sales techniques adopted by the CFD industry has been the offer of trading (monetary and non-monetary) benefits, such as bonuses to attract and encourage retail clients to invest in CFDs, the offer of gifts (for example holidays, cars, electronic goods), trading tutorials or reduced costs (for example spread or fees) (66). |
| --- | --- |

(47)

A common feature of marketing and sales techniques adopted by the CFD industry has been the offer of trading (monetary and non-monetary) benefits, such as bonuses to attract and encourage retail clients to invest in CFDs, the offer of gifts (for example holidays, cars, electronic goods), trading tutorials or reduced costs (for example spread or fees) (66).

66

| (48) | Bonuses and other trading benefits can act as a distraction from the high-risk nature of the product. They are typically targeted to attract retail clients and incentivise trading. Retail clients can consider these promotions as a central product feature to the point they may fail to properly assess the level of risks associated with the product. |
| --- | --- |

(48)

Bonuses and other trading benefits can act as a distraction from the high-risk nature of the product. They are typically targeted to attract retail clients and incentivise trading. Retail clients can consider these promotions as a central product feature to the point they may fail to properly assess the level of risks associated with the product.

| (49) | Furthermore, such trading benefits to open CFD trading accounts often require clients to pay funds to the provider and conduct a specified number of trades over a specified period of time. Given that the evidence demonstrates that the majority of retail clients lose money trading CFDs, this often means that clients lose more money from trading CFDs more frequently than they otherwise would have without receiving a bonus offer. |
| --- | --- |

(49)

Furthermore, such trading benefits to open CFD trading accounts often require clients to pay funds to the provider and conduct a specified number of trades over a specified period of time. Given that the evidence demonstrates that the majority of retail clients lose money trading CFDs, this often means that clients lose more money from trading CFDs more frequently than they otherwise would have without receiving a bonus offer.

| (50) | Supervisory work by several NCAs has discovered that the terms and conditions on promotional offers are often misleading and that many clients were unaware of the conditions to access the benefits/bonuses offered. Finally, a number of clients reported difficulties in withdrawing funds when trying to use such bonuses (67). |
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(50)

Supervisory work by several NCAs has discovered that the terms and conditions on promotional offers are often misleading and that many clients were unaware of the conditions to access the benefits/bonuses offered. Finally, a number of clients reported difficulties in withdrawing funds when trying to use such bonuses (67).

67

| (51) | In addition to the factors outlined above, many NCAs (68) observe that distribution models observed in this sector of the market bear certain conflicts of interest (69). The pressure to maintain a pipeline of new clients increases the potential for conflicts of interest to occur. Conflicts of interest have and may arise from the fact that some CFD providers are counterparties to clients' trades without hedging their exposure, therefore placing their interests in direct conflict with that of their clients. For these providers there is a greater risk and incentive to manipulate or use less transparent reference prices, or to pursue other questionable practices such as cancelling profitable trades on spurious pretexts. There is also a risk that providers may seek to exploit asymmetric slippage (for example pass on any loss as a result of slippage to the client, while retaining any profit obtained as a result of slippage). Providers may purposefully delay the time between quotes and execution of CFD trades to further exploit this practice. NCAs have also identified practices whereby CFD providers apply an asymmetrical or inconsistent mark up to core spreads. |
| --- | --- |

(51)

In addition to the factors outlined above, many NCAs (68) observe that distribution models observed in this sector of the market bear certain conflicts of interest (69). The pressure to maintain a pipeline of new clients increases the potential for conflicts of interest to occur. Conflicts of interest have and may arise from the fact that some CFD providers are counterparties to clients' trades without hedging their exposure, therefore placing their interests in direct conflict with that of their clients. For these providers there is a greater risk and incentive to manipulate or use less transparent reference prices, or to pursue other questionable practices such as cancelling profitable trades on spurious pretexts. There is also a risk that providers may seek to exploit asymmetric slippage (for example pass on any loss as a result of slippage to the client, while retaining any profit obtained as a result of slippage). Providers may purposefully delay the time between quotes and execution of CFD trades to further exploit this practice. NCAs have also identified practices whereby CFD providers apply an asymmetrical or inconsistent mark up to core spreads.

68

69

| (52) | The marketing and distribution practices associated with CFDs described above confirms the existence of a significant investor protection concern in respect of these CFDs. |
| --- | --- |

(52)

The marketing and distribution practices associated with CFDs described above confirms the existence of a significant investor protection concern in respect of these CFDs.

3.   APPLICABLE EXISTING REGULATORY REQUIREMENTS UNDER UNION LAW DO NOT ADDRESS THE SIGNIFICANT INVESTOR PROTECTION CONCERN IDENTIFIED (ARTICLE 40(2)(b) OF REGULATION (EU) No 600/2014)

APPLICABLE EXISTING REGULATORY REQUIREMENTS UNDER UNION LAW DO NOT ADDRESS THE SIGNIFICANT INVESTOR PROTECTION CONCERN IDENTIFIED (ARTICLE 40(2)(b) OF REGULATION (EU) No 600/2014)

| (53) | As required under Article 40(2)(b) of Regulation (EU) 600/2014, ESMA has considered whether existing regulatory requirements in the Union that are applicable to the relevant financial instrument or activity do not address the threat. The applicable existing regulatory requirements are set out in Directive 2014/65/EU, Regulation (EU) No 600/2014 and Regulation (EU) No 1286/2014 of the European Parliament and of the Council (70). In particular, they include: (i) the requirement to provide appropriate information to clients in Article 24(3) and (4) of Directive 2014/65/EU (71); (ii) the suitability and appropriateness requirements in Article 25(2) and (3) of Directive 2014/65/EU (72); (iii) the best execution requirements in Article 27 of Directive 2014/65/EU (73); (iv) the product governance requirements in Articles 16(3) and 24(2) of Directive 2014/65/EU; and (v) the disclosure requirements in Articles 5 to 14 of Regulation (EU) No 1286/2014. |
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(53)

As required under Article 40(2)(b) of Regulation (EU) 600/2014, ESMA has considered whether existing regulatory requirements in the Union that are applicable to the relevant financial instrument or activity do not address the threat. The applicable existing regulatory requirements are set out in Directive 2014/65/EU, Regulation (EU) No 600/2014 and Regulation (EU) No 1286/2014 of the European Parliament and of the Council (70). In particular, they include: (i) the requirement to provide appropriate information to clients in Article 24(3) and (4) of Directive 2014/65/EU (71); (ii) the suitability and appropriateness requirements in Article 25(2) and (3) of Directive 2014/65/EU (72); (iii) the best execution requirements in Article 27 of Directive 2014/65/EU (73); (iv) the product governance requirements in Articles 16(3) and 24(2) of Directive 2014/65/EU; and (v) the disclosure requirements in Articles 5 to 14 of Regulation (EU) No 1286/2014.

70

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| (54) | Some providers, brokers and trade organisations explicitly mentioned in their responses to the call for evidence that ESMA needs to consider the effects of new legislation before applying any product intervention measures, notably the recent introduction of MiFID II (in particular, the product governance rules) and PRIIPs. |
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(54)

Some providers, brokers and trade organisations explicitly mentioned in their responses to the call for evidence that ESMA needs to consider the effects of new legislation before applying any product intervention measures, notably the recent introduction of MiFID II (in particular, the product governance rules) and PRIIPs.

| (55) | It should be noted that the scope and content of several applicable regulatory requirements under Directive 2014/65/EU and Regulation (EU) No 600/2014 are similar to those existing under Directive 2004/39/EC (74). While the adoption of Directive 2014/65/EU and Regulation (EU) No 600/2014 aimed to improve several notable aspects of investment services and activities to strengthen investor protection (including through product intervention powers), the improvements in a number of relevant provisions do not address the specific concerns described in this Decision. From the perspective of the risks and the investor detriment addressed in this Decision, several provisions have therefore remained substantially unchanged. |
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(55)

It should be noted that the scope and content of several applicable regulatory requirements under Directive 2014/65/EU and Regulation (EU) No 600/2014 are similar to those existing under Directive 2004/39/EC (74). While the adoption of Directive 2014/65/EU and Regulation (EU) No 600/2014 aimed to improve several notable aspects of investment services and activities to strengthen investor protection (including through product intervention powers), the improvements in a number of relevant provisions do not address the specific concerns described in this Decision. From the perspective of the risks and the investor detriment addressed in this Decision, several provisions have therefore remained substantially unchanged.

74

| (56) | The requirements to provide appropriate information to clients have been further detailed in Directive 2014/65/EU, with a significant improvement in the area of the disclosure of costs and charges, with investment firms required to provide clients with aggregated information on all costs and charges in connection with the investment services and the financial instruments. However, disclosure-based rules alone — including improved information on costs — are clearly insufficient to tackle the complex risk arising from the marketing, distribution or sale of CFDs to retail clients. |
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(56)

The requirements to provide appropriate information to clients have been further detailed in Directive 2014/65/EU, with a significant improvement in the area of the disclosure of costs and charges, with investment firms required to provide clients with aggregated information on all costs and charges in connection with the investment services and the financial instruments. However, disclosure-based rules alone — including improved information on costs — are clearly insufficient to tackle the complex risk arising from the marketing, distribution or sale of CFDs to retail clients.

| (57) | In particular, Article 24(3) of Directive 2014/65/EU requires inter alia investment firms to ensure that all information, including marketing communications, addressed to clients or potential clients is fair, clear and not misleading. Article 24(4) of Directive 2014/65/EU further requires investment firms to give appropriate information in good time to clients and potential clients with regard to the firm and its services, the financial instruments and proposed strategies, execution venues and all costs and related charges, including notably guidance on and warnings of the risks associated with investing in those financial instruments and whether the financial instrument is intended for retail or professional clients. |
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(57)

In particular, Article 24(3) of Directive 2014/65/EU requires inter alia investment firms to ensure that all information, including marketing communications, addressed to clients or potential clients is fair, clear and not misleading. Article 24(4) of Directive 2014/65/EU further requires investment firms to give appropriate information in good time to clients and potential clients with regard to the firm and its services, the financial instruments and proposed strategies, execution venues and all costs and related charges, including notably guidance on and warnings of the risks associated with investing in those financial instruments and whether the financial instrument is intended for retail or professional clients.

| (58) | ESMA has also taken into consideration the relevance of the disclosure rules under Regulation (EU) No 1286/2014. Regulation (EU) No 1286/2014 lays down uniform rules on the format and content of the key information document to be provided by manufacturers of packaged retail and insurance based investment products (‘PRIIPs’) to retail investors in order to help them understand and compare the key features and risks of a PRIIP. In particular, Article 5 of Regulation (EU) No 1286/2014, as further implemented in the Commission Delegated Regulation (EU) 2017/653 (75) sets out inter alia a methodology for the presentation of the summary risk indicator and accompanying explanations including whether the retail investor can lose all invested capital or incur additional financial commitments. However, this type of disclosure does not sufficiently draw retail clients' attention to the consequences of investing in CFDs in particular. For example, the performance ratio only relates to the individual CFD product and this does not provide the client with the overall percentage of retail client accounts that lose money when trading CFDs. Furthermore, the summary risk indicator does not include direct information on the past performance of the product and this information may not be provided in the accompanying narrative explanations as some discretion is left to the PRIIPS manufacturer on the extent to which certain narratives should be included. |
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(58)

ESMA has also taken into consideration the relevance of the disclosure rules under Regulation (EU) No 1286/2014. Regulation (EU) No 1286/2014 lays down uniform rules on the format and content of the key information document to be provided by manufacturers of packaged retail and insurance based investment products (‘PRIIPs’) to retail investors in order to help them understand and compare the key features and risks of a PRIIP. In particular, Article 5 of Regulation (EU) No 1286/2014, as further implemented in the Commission Delegated Regulation (EU) 2017/653 (75) sets out inter alia a methodology for the presentation of the summary risk indicator and accompanying explanations including whether the retail investor can lose all invested capital or incur additional financial commitments. However, this type of disclosure does not sufficiently draw retail clients' attention to the consequences of investing in CFDs in particular. For example, the performance ratio only relates to the individual CFD product and this does not provide the client with the overall percentage of retail client accounts that lose money when trading CFDs. Furthermore, the summary risk indicator does not include direct information on the past performance of the product and this information may not be provided in the accompanying narrative explanations as some discretion is left to the PRIIPS manufacturer on the extent to which certain narratives should be included.

75

| (59) | ESMA has considered whether those requirements could address some or all of the concerns in relation to the marketing, distribution or sale of CFDs to retail clients or at least remove the need to introduce the risk warnings in this Decision. However, these requirements do not ensure that retail clients across the Union are provided with uniform and effective information on the risks related to trading in CFDs. In particular, the guidance and warnings referred to in Article 24(4) of Directive 2014/65/EU do not appear to address these concerns given the divergence in the information that may be provided to clients which may not sufficiently draw clients' attention to the concrete consequences arising from trading CFDs. The risk warnings introduced in this Decision would provide retail clients with important information, namely the percentage of retail accounts losing money when trading CFDs with each particular firm. Furthermore, it would harmonise practices in the cross-border business, hence ensuring an equal level of information to investors across the Union. |
| --- | --- |

(59)

ESMA has considered whether those requirements could address some or all of the concerns in relation to the marketing, distribution or sale of CFDs to retail clients or at least remove the need to introduce the risk warnings in this Decision. However, these requirements do not ensure that retail clients across the Union are provided with uniform and effective information on the risks related to trading in CFDs. In particular, the guidance and warnings referred to in Article 24(4) of Directive 2014/65/EU do not appear to address these concerns given the divergence in the information that may be provided to clients which may not sufficiently draw clients' attention to the concrete consequences arising from trading CFDs. The risk warnings introduced in this Decision would provide retail clients with important information, namely the percentage of retail accounts losing money when trading CFDs with each particular firm. Furthermore, it would harmonise practices in the cross-border business, hence ensuring an equal level of information to investors across the Union.

| (60) | The requirements on suitability have also been strengthened in Directive 2014/65/EU by requiring the delivery of a suitability report to the client and refining the suitability assessment. In particular Article 25(2) of Directive 2014/65/EU requires CFD providers to obtain the necessary information regarding the client's or potential client's knowledge or experience in the investment field relevant inter alia to the specific type of product, the client's or potential client's financial situation including their ability to bear losses, and their investment objectives including their risk tolerance, so as to enable the CFD provider to recommend the client or potential client financial products that are suitable for them and are in accordance with their risk tolerance and ability to bear losses. However, the suitability requirements are only applicable to the provision of investment advice and portfolio management and hence they are usually irrelevant in relation to CFD trading which mostly occurs via electronic platforms, without the provision of investment advice or portfolio management. |
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(60)

The requirements on suitability have also been strengthened in Directive 2014/65/EU by requiring the delivery of a suitability report to the client and refining the suitability assessment. In particular Article 25(2) of Directive 2014/65/EU requires CFD providers to obtain the necessary information regarding the client's or potential client's knowledge or experience in the investment field relevant inter alia to the specific type of product, the client's or potential client's financial situation including their ability to bear losses, and their investment objectives including their risk tolerance, so as to enable the CFD provider to recommend the client or potential client financial products that are suitable for them and are in accordance with their risk tolerance and ability to bear losses. However, the suitability requirements are only applicable to the provision of investment advice and portfolio management and hence they are usually irrelevant in relation to CFD trading which mostly occurs via electronic platforms, without the provision of investment advice or portfolio management.

| (61) | Furthermore, the objectives of the suitability assessment (considering products against clients' knowledge and experience, financial situation and investment objectives) are substantially unchanged compared to the regime in Directive 2004/39/EC and, as evidenced in this Decision, have not been sufficient to avoid the investor detriment identified. |
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(61)

Furthermore, the objectives of the suitability assessment (considering products against clients' knowledge and experience, financial situation and investment objectives) are substantially unchanged compared to the regime in Directive 2004/39/EC and, as evidenced in this Decision, have not been sufficient to avoid the investor detriment identified.

| (62) | Similarly, the requirements on appropriateness have been strengthened under Directive 2014/65/EU, mainly by narrowing down the list of non-complex products and therefore restricting the scope of products for execution-only services. Article 25(3) of Directive 2014/65/EU requires CFD providers to ask their clients or potential clients to provide information regarding their knowledge and experience in the investment field relevant inter alia to the specific product offered or demanded so as to enable the provider to determine whether that product is appropriate for the client or potential client. If the provider considers the product to be inappropriate for the client or potential client, the provider shall warn them. CFDs qualify as complex financial products and therefore are subject to the appropriateness test pursuant to Article 25(3) of Directive 2014/65/EU. |
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(62)

Similarly, the requirements on appropriateness have been strengthened under Directive 2014/65/EU, mainly by narrowing down the list of non-complex products and therefore restricting the scope of products for execution-only services. Article 25(3) of Directive 2014/65/EU requires CFD providers to ask their clients or potential clients to provide information regarding their knowledge and experience in the investment field relevant inter alia to the specific product offered or demanded so as to enable the provider to determine whether that product is appropriate for the client or potential client. If the provider considers the product to be inappropriate for the client or potential client, the provider shall warn them. CFDs qualify as complex financial products and therefore are subject to the appropriateness test pursuant to Article 25(3) of Directive 2014/65/EU.

| (63) | However, that was already the case under Directive 2004/39/EC, which provided for substantially the same appropriateness test as the one set out in Directive 2014/65/EU. As evidenced in this Decision and as NCAs' supervisory experience has demonstrated (76), the appropriateness test has not been sufficient to address the investor protection concern described in this Decision. |
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(63)

However, that was already the case under Directive 2004/39/EC, which provided for substantially the same appropriateness test as the one set out in Directive 2014/65/EU. As evidenced in this Decision and as NCAs' supervisory experience has demonstrated (76), the appropriateness test has not been sufficient to address the investor protection concern described in this Decision.

76

| (64) | Both the suitability and appropriateness tests under the existing regulatory requirements therefore are unlikely to prevent retail clients from trading CFDs in a way that ensures that the significant investor protection concern is addressed. |
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(64)

Both the suitability and appropriateness tests under the existing regulatory requirements therefore are unlikely to prevent retail clients from trading CFDs in a way that ensures that the significant investor protection concern is addressed.

| (65) | With regard to best execution, most of the best execution rules by themselves already existed under Directive 2004/39/EC. However, these rules have been strengthened under Directive 2014/65/EU. In particular, Article 27 of Directive 2014/65/EU provides that investment firms must take ‘all sufficient steps’ (and no longer ‘all reasonable steps’) to obtain the best possible result for their clients when executing orders. Furthermore, additional information has to be published by market participants and in particular investment firms are required to disclose the top five venues where they executed client orders and the outcomes achieved when executing those orders. |
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(65)

With regard to best execution, most of the best execution rules by themselves already existed under Directive 2004/39/EC. However, these rules have been strengthened under Directive 2014/65/EU. In particular, Article 27 of Directive 2014/65/EU provides that investment firms must take ‘all sufficient steps’ (and no longer ‘all reasonable steps’) to obtain the best possible result for their clients when executing orders. Furthermore, additional information has to be published by market participants and in particular investment firms are required to disclose the top five venues where they executed client orders and the outcomes achieved when executing those orders.

| (66) | ESMA has considered whether the revised best execution rules could address at least some of the concerns identified in relation to the marketing, distribution or sale of CFDs to retail clients. Increased transparency around order execution helps clients to better understand and to evaluate the quality of the firm's execution practices and thus to better assess the quality of the overall service provided to them. In addition, improved information on how firms execute clients' orders, assists clients when monitoring that the firm has taken all sufficient steps to achieve the best possible results for the client. The requirements in relation to best execution also strengthen the best execution standard in relation to OTC products by requiring firms to check the fairness of the price proposed to the client when executing orders or taking decisions to deal in OTC products, including bespoke products. The requirements in Directive 2014/65/EU imply gathering market data to use for the estimation of the price of such products and, where possible, by comparing with similar or comparable products. However, the best execution rules by themselves do not address the risks linked to the product's features, other than execution, and to the wide marketing, distribution or sale of these products to retail clients. |
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(66)

ESMA has considered whether the revised best execution rules could address at least some of the concerns identified in relation to the marketing, distribution or sale of CFDs to retail clients. Increased transparency around order execution helps clients to better understand and to evaluate the quality of the firm's execution practices and thus to better assess the quality of the overall service provided to them. In addition, improved information on how firms execute clients' orders, assists clients when monitoring that the firm has taken all sufficient steps to achieve the best possible results for the client. The requirements in relation to best execution also strengthen the best execution standard in relation to OTC products by requiring firms to check the fairness of the price proposed to the client when executing orders or taking decisions to deal in OTC products, including bespoke products. The requirements in Directive 2014/65/EU imply gathering market data to use for the estimation of the price of such products and, where possible, by comparing with similar or comparable products. However, the best execution rules by themselves do not address the risks linked to the product's features, other than execution, and to the wide marketing, distribution or sale of these products to retail clients.

| (67) | In respect of these substantially similar existing regulatory requirements, ESMA has repeatedly noted the risks described above in investor warnings, the Questions and Answers (Q&As) (77) and the opinion on ‘MiFID practices for firms selling complex products’. ESMA has also carried out supervisory convergence work through, inter alia, the Joint Group and the CFD task force. Despite ESMA's extensive use of its non-binding instruments to ensure a consistent and effective application of the applicable existing regulatory requirements, the investor protection concern persists. This highlights that, for the reasons set out in this section, these requirements do not address the concern identified. |
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(67)

In respect of these substantially similar existing regulatory requirements, ESMA has repeatedly noted the risks described above in investor warnings, the Questions and Answers (Q&As) (77) and the opinion on ‘MiFID practices for firms selling complex products’. ESMA has also carried out supervisory convergence work through, inter alia, the Joint Group and the CFD task force. Despite ESMA's extensive use of its non-binding instruments to ensure a consistent and effective application of the applicable existing regulatory requirements, the investor protection concern persists. This highlights that, for the reasons set out in this section, these requirements do not address the concern identified.

77

| (68) | ESMA has indeed considered the potential impact of the product governance rules set out in Articles 16(3) and 24(2) of Directive 2014/65/EU. These rules require providers manufacturing financial instruments (including therefore CFDs) for sale to clients to ensure that the products are designed to meet the needs of an identified target market of end clients within the relevant category of clients; that the strategy for distribution of the products is compatible with the identified target market; and that the providers takes reasonable steps to ensure that the financial instruments are distributed to the identified target market and periodically review the identification of the target market of and the performance of the product. CFD providers shall understand the financial instruments they offer or recommend, assess the compatibility of the instrument with the needs of the client to whom it provides investment services, also taking into account the identified target market of end clients, and ensure that financial instruments are offered or recommended only when it is in the interest of the client. Furthermore, CFD providers that would distribute a financial instrument not manufactured by them shall have appropriate arrangements in place to obtain and understand the relevant information concerning the product approval process, including the identified target market and the characteristics of the product. CFD providers distributing financial instruments manufactured by providers not subject to the product governance requirements in Directive 2014/65/EU or by third-country providers shall also have appropriate arrangements to obtain sufficient information about the financial instruments. |
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(68)

ESMA has indeed considered the potential impact of the product governance rules set out in Articles 16(3) and 24(2) of Directive 2014/65/EU. These rules require providers manufacturing financial instruments (including therefore CFDs) for sale to clients to ensure that the products are designed to meet the needs of an identified target market of end clients within the relevant category of clients; that the strategy for distribution of the products is compatible with the identified target market; and that the providers takes reasonable steps to ensure that the financial instruments are distributed to the identified target market and periodically review the identification of the target market of and the performance of the product. CFD providers shall understand the financial instruments they offer or recommend, assess the compatibility of the instrument with the needs of the client to whom it provides investment services, also taking into account the identified target market of end clients, and ensure that financial instruments are offered or recommended only when it is in the interest of the client. Furthermore, CFD providers that would distribute a financial instrument not manufactured by them shall have appropriate arrangements in place to obtain and understand the relevant information concerning the product approval process, including the identified target market and the characteristics of the product. CFD providers distributing financial instruments manufactured by providers not subject to the product governance requirements in Directive 2014/65/EU or by third-country providers shall also have appropriate arrangements to obtain sufficient information about the financial instruments.

| (69) | ESMA notes that the product governance requirements are introduced for the first time in Union law under Directive 2014/65/EU. On 2 June 2017, ESMA published the ‘Guidelines on MiFID II product governance requirements’ (78) in which guidance is provided to manufacturers and developers for the assessment of the target market. |
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(69)

ESMA notes that the product governance requirements are introduced for the first time in Union law under Directive 2014/65/EU. On 2 June 2017, ESMA published the ‘Guidelines on MiFID II product governance requirements’ (78) in which guidance is provided to manufacturers and developers for the assessment of the target market.

78

| (70) | Whilst these requirements could narrow down the type of clients (the target market) for which CFDs would be appropriate and to which they should therefore be distributed, they do not address the key risks described in this Decision linked to the product's features (for example high leverage) or associated practices (for example, allowing additional payment obligations or the offer of bonuses). They also do not restrict specifically the distribution of products with the above features to the mass market. Instead, the detriment occurred to clients shows that the marketing, distribution or sale of CFDs is not appropriate for the retail mass market, unless accompanied by certain restrictions which the product governance requirements do not detail. Where respondents to the call for evidence fairly state that the product governance requirements are important aspects in determining the target market and aligning the distribution strategy with this target market, it is also clear from the call for evidence that certain providers indicated in their response that they consider that CFDs with high leverage limits (for example, 100:1 (79)) are, even where the product governance requirements are applicable, an appropriate product for retail clients (they conclude that the target market for CFDs with this particular leverage is a mass market). Several firms, after implementation of Directive 2014/65/EU and its product governance requirements, still market CFDs with such high leverages to the mass market (assessing only the appropriateness). ESMA and the NCAs disagree with such an approach. This demonstrates that product governance requirements still give a certain margin of discretion to individual providers to identify the features of products they intend to offer to their clients. There is still, therefore, a lack of a common minimum level of investor protection across the Union. |
| --- | --- |

(70)

Whilst these requirements could narrow down the type of clients (the target market) for which CFDs would be appropriate and to which they should therefore be distributed, they do not address the key risks described in this Decision linked to the product's features (for example high leverage) or associated practices (for example, allowing additional payment obligations or the offer of bonuses). They also do not restrict specifically the distribution of products with the above features to the mass market. Instead, the detriment occurred to clients shows that the marketing, distribution or sale of CFDs is not appropriate for the retail mass market, unless accompanied by certain restrictions which the product governance requirements do not detail. Where respondents to the call for evidence fairly state that the product governance requirements are important aspects in determining the target market and aligning the distribution strategy with this target market, it is also clear from the call for evidence that certain providers indicated in their response that they consider that CFDs with high leverage limits (for example, 100:1 (79)) are, even where the product governance requirements are applicable, an appropriate product for retail clients (they conclude that the target market for CFDs with this particular leverage is a mass market). Several firms, after implementation of Directive 2014/65/EU and its product governance requirements, still market CFDs with such high leverages to the mass market (assessing only the appropriateness). ESMA and the NCAs disagree with such an approach. This demonstrates that product governance requirements still give a certain margin of discretion to individual providers to identify the features of products they intend to offer to their clients. There is still, therefore, a lack of a common minimum level of investor protection across the Union.

79

| (71) | Despite the existence of these regulatory requirements, evidence shows that retail clients continue and will continue to lose money on CFDs. Therefore, this measure is necessary to address the threat. |
| --- | --- |

(71)

Despite the existence of these regulatory requirements, evidence shows that retail clients continue and will continue to lose money on CFDs. Therefore, this measure is necessary to address the threat.

4.   COMPETENT AUTHORITIES HAVE NOT TAKEN ACTION TO ADDRESS THE THREAT OR THE ACTIONS TAKEN DO NOT ADEQUATELY ADDRESS THE THREAT (ARTICLE 40(2)(c) OF REGULATION (EU) No 600/2014)

COMPETENT AUTHORITIES HAVE NOT TAKEN ACTION TO ADDRESS THE THREAT OR THE ACTIONS TAKEN DO NOT ADEQUATELY ADDRESS THE THREAT (ARTICLE 40(2)(c) OF REGULATION (EU) No 600/2014)

| (72) | One of the conditions for ESMA to adopt the restriction in this Decision is that a competent authority or competent authorities have not taken action to address the threat or the actions that have been taken do not adequately address the threat. |
| --- | --- |

(72)

One of the conditions for ESMA to adopt the restriction in this Decision is that a competent authority or competent authorities have not taken action to address the threat or the actions that have been taken do not adequately address the threat.

| (73) | The investor protection concern described in this Decision have led some NCAs to consult on or take national actions aimed at restricting the marketing, distribution or sale of CFDs to retail clients:






  (i) | since August 2016, the Financial Services and Markets Authority (‘BE-FSMA’), the Belgian NCA, has in place a ban on the commercialisation of certain OTC derivative contracts (including CFDs) to retail clients. In addition, the FSMA has forbidden a number of aggressive or inappropriate distribution techniques such as cold calling via external call centres, inappropriate forms of remuneration and fictitious gifts or bonuses (80); |
| --- | --- | --- |

(73)

The investor protection concern described in this Decision have led some NCAs to consult on or take national actions aimed at restricting the marketing, distribution or sale of CFDs to retail clients:

(i)

since August 2016, the Financial Services and Markets Authority (‘BE-FSMA’), the Belgian NCA, has in place a ban on the commercialisation of certain OTC derivative contracts (including CFDs) to retail clients. In addition, the FSMA has forbidden a number of aggressive or inappropriate distribution techniques such as cold calling via external call centres, inappropriate forms of remuneration and fictitious gifts or bonuses (80);

80

| (ii) | since November 2016, CY-CySEC requires CFD providers to establish a leverage policy and apply leverage limits not exceeding 50:1 for retail clients, unless a client, with the relevant knowledge and experience, requires a higher level of leverage (81). CY-CySEC also requires providers to have a negative balance protection per CFD account. Furthermore, since mid-March 2017 there is in place a bonus promotion prohibition (82); |
| --- | --- |

(ii)

since November 2016, CY-CySEC requires CFD providers to establish a leverage policy and apply leverage limits not exceeding 50:1 for retail clients, unless a client, with the relevant knowledge and experience, requires a higher level of leverage (81). CY-CySEC also requires providers to have a negative balance protection per CFD account. Furthermore, since mid-March 2017 there is in place a bonus promotion prohibition (82);

81

82

| (iii) | since December 2016, in France the legislation sets forth a ban on investment service providers' marketing communications to individuals regarding CFDs not limiting the client's loss per position (83); |
| --- | --- |

(iii)

since December 2016, in France the legislation sets forth a ban on investment service providers' marketing communications to individuals regarding CFDs not limiting the client's loss per position (83);

83

| (iv) | since July 2015, the PL-KNF requires CFD providers to have leverage limits for CFDs to retail clients not higher than 100:1 (84). In July 2017, the Polish Ministry of Finance released a project of change in the Act on Trading in Financial Instruments in order to set maximum leverage of 25:1 across all asset classes and financial instruments traded by retail clients without CCP settlement (85). Following its wide public consultation between July and November 2017, on 13 December 2017, the Polish Ministry of Finance announced an update to the project with a public consultation open from 13 to 22 December 2017. The new project will introduce two different maximum leverage limits: 100:1 for experienced retail clients (those who concluded at least 40 transactions in the 24 months prior to entering into a new transaction for which a leverage limit is being established) and 50:1 for inexperienced retail clients (86); |
| --- | --- |

(iv)

since July 2015, the PL-KNF requires CFD providers to have leverage limits for CFDs to retail clients not higher than 100:1 (84). In July 2017, the Polish Ministry of Finance released a project of change in the Act on Trading in Financial Instruments in order to set maximum leverage of 25:1 across all asset classes and financial instruments traded by retail clients without CCP settlement (85). Following its wide public consultation between July and November 2017, on 13 December 2017, the Polish Ministry of Finance announced an update to the project with a public consultation open from 13 to 22 December 2017. The new project will introduce two different maximum leverage limits: 100:1 for experienced retail clients (those who concluded at least 40 transactions in the 24 months prior to entering into a new transaction for which a leverage limit is being established) and 50:1 for inexperienced retail clients (86);

84

85

86

| (v) | since October 2017, the Malta Financial Services Authority (‘MT-MFSA’), the NCA in Malta, has in place an Online Forex Policy requiring providers of CFDs, rolling spot forex and other complex, speculative products to set the following leverage limits: 50:1 for retail clients and 100:1 for retail clients which elect to be treated as professional clients (87); |
| --- | --- |

(v)

since October 2017, the Malta Financial Services Authority (‘MT-MFSA’), the NCA in Malta, has in place an Online Forex Policy requiring providers of CFDs, rolling spot forex and other complex, speculative products to set the following leverage limits: 50:1 for retail clients and 100:1 for retail clients which elect to be treated as professional clients (87);

87

| (vi) | in May 2017, the Bundesanstalt für Finanzdienstleistungsaufsicht (‘DE-BaFin’), the German NCA, banned the marketing, distribution or sale of CFDs to retail clients that do not exclude additional payment obligations (88); |
| --- | --- |

(vi)

in May 2017, the Bundesanstalt für Finanzdienstleistungsaufsicht (‘DE-BaFin’), the German NCA, banned the marketing, distribution or sale of CFDs to retail clients that do not exclude additional payment obligations (88);

88

| (vii) | in March 2017, the ES-CNMV requested entities which market to retail clients established in Spain, CFDs or forex products with leverage of over 10 times or binary options to expressly inform such clients that the ES-CNMV considers that, due to the complexity and the level of risk of these products, their acquisition is not suitable for retail clients. These entities have also been requested to ensure that clients are informed of the cost they would have to assume if they decided to close their position upon purchasing such products and, in the case of CFDs and forex products, that they are warned that, due to leverage, the losses could be greater than the amount initially paid to purchase the relevant product. In addition, they must obtain from the client a handwritten or recorded verbal statement that allows them to prove that the client is aware that the product they are going to acquire is particularly complex and that the ES-CNMV considers that it is not suitable for a retail client. Furthermore, the advertising material used by the entities subject to the ES-CNMV's action to promote these products must always contain a warning about the difficulty of understanding the products and the fact that the ES-CNMV considers that these products are not suitable for retail clients because of their complexity and the level of risk they carry. The ES-CNMV also requested CY-CySEC and the UK-FCA to inform CFD providers of these requirements, encouraging providers that provide services in Spain to display the same warning (89); |
| --- | --- |

(vii)

in March 2017, the ES-CNMV requested entities which market to retail clients established in Spain, CFDs or forex products with leverage of over 10 times or binary options to expressly inform such clients that the ES-CNMV considers that, due to the complexity and the level of risk of these products, their acquisition is not suitable for retail clients. These entities have also been requested to ensure that clients are informed of the cost they would have to assume if they decided to close their position upon purchasing such products and, in the case of CFDs and forex products, that they are warned that, due to leverage, the losses could be greater than the amount initially paid to purchase the relevant product. In addition, they must obtain from the client a handwritten or recorded verbal statement that allows them to prove that the client is aware that the product they are going to acquire is particularly complex and that the ES-CNMV considers that it is not suitable for a retail client. Furthermore, the advertising material used by the entities subject to the ES-CNMV's action to promote these products must always contain a warning about the difficulty of understanding the products and the fact that the ES-CNMV considers that these products are not suitable for retail clients because of their complexity and the level of risk they carry. The ES-CNMV also requested CY-CySEC and the UK-FCA to inform CFD providers of these requirements, encouraging providers that provide services in Spain to display the same warning (89);

89

| (viii) | on 6 March 2017, the IE-CBI issued a consultation paper which sought views on two main options: (i) the prohibition of the sale or distribution of CFDs to retail clients, or (ii) the implementation of enhanced investor protection measures, including a limitation on leverage and a requirement that retail clients cannot lose more than the amount they had deposited on a per-position basis (90); |
| --- | --- |

(viii)

on 6 March 2017, the IE-CBI issued a consultation paper which sought views on two main options: (i) the prohibition of the sale or distribution of CFDs to retail clients, or (ii) the implementation of enhanced investor protection measures, including a limitation on leverage and a requirement that retail clients cannot lose more than the amount they had deposited on a per-position basis (90);

90

| (ix) | on 10 May 2017 the Ελληνική Επιτροπή Κεφαλαιαγοράς (‘EL-HCMC’),the Greek NCA, issued a circular on providing investment services in over-the-counter derivative financial instruments (including forex, CFDs and binary options) through electronic trading platforms (91); and |
| --- | --- |

(ix)

on 10 May 2017 the Ελληνική Επιτροπή Κεφαλαιαγοράς (‘EL-HCMC’),the Greek NCA, issued a circular on providing investment services in over-the-counter derivative financial instruments (including forex, CFDs and binary options) through electronic trading platforms (91); and

91

| (x) | in February 2018, the PT-CMVM issued a circular letter stating that investment firms shall refrain from providing trading services related to derivatives linked to cryptocurrencies if they are unable to ensure compliance with all the information obligations towards clients regarding the characteristics of the products. |
| --- | --- |

(x)

in February 2018, the PT-CMVM issued a circular letter stating that investment firms shall refrain from providing trading services related to derivatives linked to cryptocurrencies if they are unable to ensure compliance with all the information obligations towards clients regarding the characteristics of the products.

| (74) | In addition to this, the Finanstilsynet (‘NO-Finanstilsynet’), the Norwegian NCA, published on 26 February 2018 a consultation paper in which they propose inter alia similar measures in relation to CFDs as proposed by ESMA in the call for evidence. The consultation period is from 26 February 2018 until 26 March 2018 (92). |
| --- | --- |

(74)

In addition to this, the Finanstilsynet (‘NO-Finanstilsynet’), the Norwegian NCA, published on 26 February 2018 a consultation paper in which they propose inter alia similar measures in relation to CFDs as proposed by ESMA in the call for evidence. The consultation period is from 26 February 2018 until 26 March 2018 (92).

92

| (75) | Other NCAs have warned retail clients in relation to CFDs. In particular:






  (i) | in December 2016, the AT-FMA issued a warning regarding the risks associated with CFDs, rolling spot forex and binary options; |
| --- | --- | --- |

(75)

Other NCAs have warned retail clients in relation to CFDs. In particular:

(i)

in December 2016, the AT-FMA issued a warning regarding the risks associated with CFDs, rolling spot forex and binary options;

| (ii) | in February 2017, IT-CONSOB issued a specific communication to warn Italian retail clients on the risks associated with CFDs (93); and |
| --- | --- |

(ii)

in February 2017, IT-CONSOB issued a specific communication to warn Italian retail clients on the risks associated with CFDs (93); and

93

| (iii) | in November 2017, the UK-FCA issued a warning regarding the risks associated with CFDs on cryptocurrencies (94). |
| --- | --- |

(iii)

in November 2017, the UK-FCA issued a warning regarding the risks associated with CFDs on cryptocurrencies (94).

94

| (76) | Furthermore, the NO- Finanstilsynet has revoked the authorisation of a CFD provider after an on-site inspection. |
| --- | --- |

(76)

Furthermore, the NO- Finanstilsynet has revoked the authorisation of a CFD provider after an on-site inspection.

| (77) | As evidenced above, some actions to tackle investor protection concern arising from the marketing, distribution or sale of CFDs to retail clients have been taken or considered by NCAs in 13 out of 28 Member States. These measures vary significantly and include, inter alia, a ban on the commercialisation of CFDs to retail clients, the introduction of certain leverage limits, marketing restrictions and a requirement to ensure negative balance protection. However, even though these measures have had some effects, the significant investor protection concern persist. |
| --- | --- |

(77)

As evidenced above, some actions to tackle investor protection concern arising from the marketing, distribution or sale of CFDs to retail clients have been taken or considered by NCAs in 13 out of 28 Member States. These measures vary significantly and include, inter alia, a ban on the commercialisation of CFDs to retail clients, the introduction of certain leverage limits, marketing restrictions and a requirement to ensure negative balance protection. However, even though these measures have had some effects, the significant investor protection concern persist.

| (78) | For example, in France, where one of the strongest measures in the Union was adopted, the FR-AMF confirms that it still has concerns linked to the features of these products and to the continuing offer of these products to retail clients. By way of example, while the FR-AMF has recorded a reduction in the number of complaints in 2017, it still observes a significant number (33 %) (95) of complaints in relation to these products, compared to the overall number of complaints it receives in relation to other investment products and services. In Poland, the adoption of measures in July 2015 has not been sufficient to address investor protection concern. As previously mentioned, a study conducted by the PL-KNF in the first quarter of 2018 showed that 79,69 % of clients lost money in 2017 and the average loss per client increased. |
| --- | --- |

(78)

For example, in France, where one of the strongest measures in the Union was adopted, the FR-AMF confirms that it still has concerns linked to the features of these products and to the continuing offer of these products to retail clients. By way of example, while the FR-AMF has recorded a reduction in the number of complaints in 2017, it still observes a significant number (33 %) (95) of complaints in relation to these products, compared to the overall number of complaints it receives in relation to other investment products and services. In Poland, the adoption of measures in July 2015 has not been sufficient to address investor protection concern. As previously mentioned, a study conducted by the PL-KNF in the first quarter of 2018 showed that 79,69 % of clients lost money in 2017 and the average loss per client increased.

95

| (79) | In contrast, in Belgium, the BE-FSMA is satisfied with the result of its action; however, BE-FSMA introduced a ban of the commercialisation of CFDs to retail clients and therefore these products cannot be legally offered to retail clients in Belgium anymore. |
| --- | --- |

(79)

In contrast, in Belgium, the BE-FSMA is satisfied with the result of its action; however, BE-FSMA introduced a ban of the commercialisation of CFDs to retail clients and therefore these products cannot be legally offered to retail clients in Belgium anymore.

| (80) | ESMA does not have evidence that a prohibition of, as opposed to restrictions on, the marketing, distribution or sale of CFDs to retail clients at Union level is necessary at this stage. However, given that the individual restrictions applied in the national measures taken so far which featured only some of the elements included in this measure (for example specific leverage limits or marketing restrictions) proved to be insufficient to solve the investor protection concern identified, ESMA considers it necessary to impose each of the requirements in this Decision as a package to achieve a minimum level of protection of retail clients across the Union. |
| --- | --- |

(80)

ESMA does not have evidence that a prohibition of, as opposed to restrictions on, the marketing, distribution or sale of CFDs to retail clients at Union level is necessary at this stage. However, given that the individual restrictions applied in the national measures taken so far which featured only some of the elements included in this measure (for example specific leverage limits or marketing restrictions) proved to be insufficient to solve the investor protection concern identified, ESMA considers it necessary to impose each of the requirements in this Decision as a package to achieve a minimum level of protection of retail clients across the Union.

| (81) | Furthermore, CFDs are commonly marketed, distributed or sold through online trading accounts. Therefore, a national ban or restriction is inadequate to protect retail clients in Member States other than the the Member State in which the measure is taken when CFD providers operate in other Member States. As evidenced by data gathered by the UK-FCA and the CY-CySEC (96), CFD providers have been able to reach out to new clients across the Union easily and quickly by operating online. As a further example confirming the persisting EU dimension of business in this area, IT-CONSOB reported to ESMA that all complaints it received on CFDs and binary options in the time period from September 2017 to February 2018 entirely concerned CFD providers operating in Italy from five different Member States by virtue of the freedom to provide investment services or activities or the right to establish a branch in other Member States (97). |
| --- | --- |

(81)

Furthermore, CFDs are commonly marketed, distributed or sold through online trading accounts. Therefore, a national ban or restriction is inadequate to protect retail clients in Member States other than the the Member State in which the measure is taken when CFD providers operate in other Member States. As evidenced by data gathered by the UK-FCA and the CY-CySEC (96), CFD providers have been able to reach out to new clients across the Union easily and quickly by operating online. As a further example confirming the persisting EU dimension of business in this area, IT-CONSOB reported to ESMA that all complaints it received on CFDs and binary options in the time period from September 2017 to February 2018 entirely concerned CFD providers operating in Italy from five different Member States by virtue of the freedom to provide investment services or activities or the right to establish a branch in other Member States (97).

96

97

| (82) | In the light of the above, for national measures to be effective for retail clients across the Union, it would be necessary for NCAs in all Member States to take action aimed at introducing the common minimum level of investor protection set out in this Decision within a short period of time. Since this has not occurred and given the urgency to address the investor protection concern identified, ESMA finds it necessary to exercise its temporary product intervention powers. The current fragmented framework provides retail clients with no or a different level of protection across the Union when investing in the same complex products, sometimes from the same providers. |
| --- | --- |

(82)

In the light of the above, for national measures to be effective for retail clients across the Union, it would be necessary for NCAs in all Member States to take action aimed at introducing the common minimum level of investor protection set out in this Decision within a short period of time. Since this has not occurred and given the urgency to address the investor protection concern identified, ESMA finds it necessary to exercise its temporary product intervention powers. The current fragmented framework provides retail clients with no or a different level of protection across the Union when investing in the same complex products, sometimes from the same providers.

| (83) | Lastly, the use of supervisory powers by NCAs under Article 69 of Directive 2014/65/EU, for example under paragraph (2)(f) (temporary prohibition of professional activity) and (t) (suspension of the marketing or sale for a lack of compliance with the product approval process requirements) would also not address the significant investor protection concern. A product intervention measure applies to a product, or to an activity relating to that product, and therefore applies to all investment firms providing that product or activity, rather than one particular non-compliance by an individual investment firm. By addressing on a Union basis the risks arising from the offer of CFDs to retail clients, the intervention measure is more effective than NCAs trying to take action against each firm individually. As noted above, evidence shows that this is a market wide issue as the problem is not limited to the specificities of particular providers and that the key risks are inherent to the product and to the providers' business model. As such, varied individual supervisory actions would not immediately ensure that further harm to retail clients is prevented and would not provide an adequate alternative to the use of ESMA's intervention powers. The cross-border nature of the distribution of CFDs, the fact that they affect more than one Member State, the spread of the distribution of CFDs in new jurisdictions, and the proliferation of different national measures to address similar investor protection concern (which, in turn, may contribute to the risk of regulatory arbitrage) lead to the conclusion that Union-wide measures to ensure a common level of protection across the Union are considered necessary. |
| --- | --- |

(83)

Lastly, the use of supervisory powers by NCAs under Article 69 of Directive 2014/65/EU, for example under paragraph (2)(f) (temporary prohibition of professional activity) and (t) (suspension of the marketing or sale for a lack of compliance with the product approval process requirements) would also not address the significant investor protection concern. A product intervention measure applies to a product, or to an activity relating to that product, and therefore applies to all investment firms providing that product or activity, rather than one particular non-compliance by an individual investment firm. By addressing on a Union basis the risks arising from the offer of CFDs to retail clients, the intervention measure is more effective than NCAs trying to take action against each firm individually. As noted above, evidence shows that this is a market wide issue as the problem is not limited to the specificities of particular providers and that the key risks are inherent to the product and to the providers' business model. As such, varied individual supervisory actions would not immediately ensure that further harm to retail clients is prevented and would not provide an adequate alternative to the use of ESMA's intervention powers. The cross-border nature of the distribution of CFDs, the fact that they affect more than one Member State, the spread of the distribution of CFDs in new jurisdictions, and the proliferation of different national measures to address similar investor protection concern (which, in turn, may contribute to the risk of regulatory arbitrage) lead to the conclusion that Union-wide measures to ensure a common level of protection across the Union are considered necessary.

5.   ESMA'S MEASURE ADDRESSES THE SIGNIFICANT INVESTOR PROTECTION CONCERN IDENTIFIED AND DOES NOT HAVE A DETRIMENTAL EFFECT ON THE EFFICIENCY OF FINANCIAL MARKETS OR ON INVESTORS THAT IS DISPROPORTIONATE TO ITS BENEFITS (ARTICLE 40(2)(a) AND (3)(a) OF REGULATION (EU) No 600/2014)

ESMA'S MEASURE ADDRESSES THE SIGNIFICANT INVESTOR PROTECTION CONCERN IDENTIFIED AND DOES NOT HAVE A DETRIMENTAL EFFECT ON THE EFFICIENCY OF FINANCIAL MARKETS OR ON INVESTORS THAT IS DISPROPORTIONATE TO ITS BENEFITS (ARTICLE 40(2)(a) AND (3)(a) OF REGULATION (EU) No 600/2014)

| (84) | Taking into account the size and nature of the significant investor protection concern identified, ESMA considers it necessary and proportionate to temporarily restrict the marketing, distribution or sale of CFDs to retail clients to circumstances where a number of conditions are met. |
| --- | --- |

(84)

Taking into account the size and nature of the significant investor protection concern identified, ESMA considers it necessary and proportionate to temporarily restrict the marketing, distribution or sale of CFDs to retail clients to circumstances where a number of conditions are met.

| (85) | ESMA's restriction addresses the significant investor protection concern identified by affording an appropriate and uniform level of minimum protection to retail clients trading CFDs in the Union. Furthermore, it does not have a detrimental effect on the efficiency of financial markets or on investors that is disproportionate to its benefits. |
| --- | --- |

(85)

ESMA's restriction addresses the significant investor protection concern identified by affording an appropriate and uniform level of minimum protection to retail clients trading CFDs in the Union. Furthermore, it does not have a detrimental effect on the efficiency of financial markets or on investors that is disproportionate to its benefits.

| (86) | The main benefits linked to ESMA's temporary intervention measures are the following:






  (i) | reduction of the mis-selling risk of CFDs and its related financial consequences. This is a major benefit for retail clients and for the financial markets as a whole; |
| --- | --- | --- |

(86)

The main benefits linked to ESMA's temporary intervention measures are the following:

(i)

reduction of the mis-selling risk of CFDs and its related financial consequences. This is a major benefit for retail clients and for the financial markets as a whole;

| (ii) | reduction of risks linked to regulatory or supervisory arbitrage across different entities and jurisdictions; |
| --- | --- |

(ii)

reduction of risks linked to regulatory or supervisory arbitrage across different entities and jurisdictions;

| (iii) | restoring investors' confidence in financial markets including confidence in providers active in this sector which may have suffered from reputational damage arising from problems encountered by investors. |
| --- | --- |

(iii)

restoring investors' confidence in financial markets including confidence in providers active in this sector which may have suffered from reputational damage arising from problems encountered by investors.

| (87) | ESMA believes that potential financial consequences and costs that providers will face when implementing the intervention measures in this Decision are likely to be of both a one-off and ongoing nature linked, inter alia, to:






  (i) | initial and ongoing IT costs; |
| --- | --- | --- |

(87)

ESMA believes that potential financial consequences and costs that providers will face when implementing the intervention measures in this Decision are likely to be of both a one-off and ongoing nature linked, inter alia, to:

(i)

initial and ongoing IT costs;

| (ii) | the update/review of the existing procedural and organisational arrangements; |
| --- | --- |

(ii)

the update/review of the existing procedural and organisational arrangements;

| (iii) | relevant HR costs linked to the implementation of ESMA's intervention measures (including compliance function staff and staff providing relevant investment services or information about the products); |
| --- | --- |

(iii)

relevant HR costs linked to the implementation of ESMA's intervention measures (including compliance function staff and staff providing relevant investment services or information about the products);

| (iv) | the potential review and update of existing contracts (repapering); and |
| --- | --- |

(iv)

the potential review and update of existing contracts (repapering); and

| (v) | reduced sales volumes of products covered by ESMA's intervention measures. |
| --- | --- |

(v)

reduced sales volumes of products covered by ESMA's intervention measures.

| (88) | It is possible that some of these costs will be passed on to investors. |
| --- | --- |

(88)

It is possible that some of these costs will be passed on to investors.

| (89) | Further reference to the expected impact of the intervention measures is set out below. |
| --- | --- |

(89)

Further reference to the expected impact of the intervention measures is set out below.

5.1.   Initial margin protection

Initial margin protection

| (90) | ESMA considers it necessary to restrict the marketing, distribution or sale of CFDs to retail clients by the application of certain specific leverage limits depending on the nature of the underlying. |
| --- | --- |

(90)

ESMA considers it necessary to restrict the marketing, distribution or sale of CFDs to retail clients by the application of certain specific leverage limits depending on the nature of the underlying.

| (91) | The introduction of these leverage limits will protect clients by requiring them to pay a minimum initial margin in order to enter into a CFD. This requirement is known as ‘initial margin protection’. This will limit the client's notional investment exposure in relation to the amount of money invested. As the costs a client faces are increasing in notional investment exposure, initial margin protection will reduce the probability of client losses compared to those that would be expected if the client were to trade at higher leverage (98). As further explained below, empirical academic research corroborates this analysis and establishes that leverage limits improve average outcomes for investors (99). |
| --- | --- |

(91)

The introduction of these leverage limits will protect clients by requiring them to pay a minimum initial margin in order to enter into a CFD. This requirement is known as ‘initial margin protection’. This will limit the client's notional investment exposure in relation to the amount of money invested. As the costs a client faces are increasing in notional investment exposure, initial margin protection will reduce the probability of client losses compared to those that would be expected if the client were to trade at higher leverage (98). As further explained below, empirical academic research corroborates this analysis and establishes that leverage limits improve average outcomes for investors (99).

98

99

| (92) | In coming to its conclusion, ESMA has taken into account the responses from its call for evidence. The responses from providers, trade organisations and other interested entities to the call for evidence were, with some exceptions, generally negative on the proposed leverage limits. The main impact on providers of imposing leverage limits as proposed was an expected decrease of revenues. However, many of them indicated that they — in general — did not oppose leverage limits as an intervention measure, but disagreed with the specific limits proposed. |
| --- | --- |

(92)

In coming to its conclusion, ESMA has taken into account the responses from its call for evidence. The responses from providers, trade organisations and other interested entities to the call for evidence were, with some exceptions, generally negative on the proposed leverage limits. The main impact on providers of imposing leverage limits as proposed was an expected decrease of revenues. However, many of them indicated that they — in general — did not oppose leverage limits as an intervention measure, but disagreed with the specific limits proposed.

| (93) | The consumer representatives were generally positive towards the proposed measures on CFDs, including the leverage limits proposed by ESMA. In almost half of the responses from consumer representatives, however, it was proposed to go beyond the measures proposed by ESMA, by adopting stricter measures such as stricter leverage limits or a full ban on the marketing, distribution or sale of CFDs to retail clients. |
| --- | --- |

(93)

The consumer representatives were generally positive towards the proposed measures on CFDs, including the leverage limits proposed by ESMA. In almost half of the responses from consumer representatives, however, it was proposed to go beyond the measures proposed by ESMA, by adopting stricter measures such as stricter leverage limits or a full ban on the marketing, distribution or sale of CFDs to retail clients.

| (94) | The large majority of responses from individuals expressed a generic, often very short, approval or disapproval of the proposed measures and only a very limited number qualified their comments in a more substantial way. A vast majority of these individuals were negative towards the proposed leverage limits. Among the few individuals supporting ESMA's proposed measures on CFDs, some mentioned that they believe retail clients require a further layer of protection when trading these instruments. Some of them referred to the amount of losses arising from CFDs trading or complained about the aggressive behaviour carried out by some firms. In some instances, the investors claimed that they have been victims of fraud. |
| --- | --- |

(94)

The large majority of responses from individuals expressed a generic, often very short, approval or disapproval of the proposed measures and only a very limited number qualified their comments in a more substantial way. A vast majority of these individuals were negative towards the proposed leverage limits. Among the few individuals supporting ESMA's proposed measures on CFDs, some mentioned that they believe retail clients require a further layer of protection when trading these instruments. Some of them referred to the amount of losses arising from CFDs trading or complained about the aggressive behaviour carried out by some firms. In some instances, the investors claimed that they have been victims of fraud.

| (95) | Some respondents to the call for evidence indicated that they would appreciate further fine-tuning of the categories used for the initial margin protection. One respondent indicated several specific underlyings for reclassification due to its volatility. Following further quantitative analysis, ESMA has reassigned the EuroSTOXX50 to the asset class of major indices. Also the NASDAQ-100 is added to the asset class of major indices. |
| --- | --- |

(95)

Some respondents to the call for evidence indicated that they would appreciate further fine-tuning of the categories used for the initial margin protection. One respondent indicated several specific underlyings for reclassification due to its volatility. Following further quantitative analysis, ESMA has reassigned the EuroSTOXX50 to the asset class of major indices. Also the NASDAQ-100 is added to the asset class of major indices.

| (96) | Existing research indicates that lower leverage is associated with improved client outcomes, including lower losses per trade and lower total transaction fees as a function of lower volumes of trading (100). |
| --- | --- |

(96)

Existing research indicates that lower leverage is associated with improved client outcomes, including lower losses per trade and lower total transaction fees as a function of lower volumes of trading (100).

100

| (97) | In particular, detailed research by Rawley Z. Heimer and Alp Simsek, comparing client outcomes before and after the application of leverage limits in the US market concludes that leverage limits improved outcomes for the highest-leveraged clients by 18 percentage points per month and alleviated their losses by 40 % (101). This in-depth academic study demonstrates a positive relationship between lower leverage and lower trading volumes, which contributed to improved outcomes for consumers. |
| --- | --- |

(97)

In particular, detailed research by Rawley Z. Heimer and Alp Simsek, comparing client outcomes before and after the application of leverage limits in the US market concludes that leverage limits improved outcomes for the highest-leveraged clients by 18 percentage points per month and alleviated their losses by 40 % (101). This in-depth academic study demonstrates a positive relationship between lower leverage and lower trading volumes, which contributed to improved outcomes for consumers.

101

| (98) | ESMA has not received during the call for evidence any quantitative data evidencing that introducing initial margin protection results in lower returns on investment for retail clients. |
| --- | --- |

(98)

ESMA has not received during the call for evidence any quantitative data evidencing that introducing initial margin protection results in lower returns on investment for retail clients.

| (99) | In addition, requiring minimum initial margin will address some of the distribution risks relating to CFDs by ensuring that only retail clients who are capable of posting sufficiently high margin can trade in these products (102). |
| --- | --- |

(99)

In addition, requiring minimum initial margin will address some of the distribution risks relating to CFDs by ensuring that only retail clients who are capable of posting sufficiently high margin can trade in these products (102).

102

| (100) | Relatedly, the initial margin protection is also expected to lower the likelihood that CFD providers target a mass retail client through smaller account sizes, supported by higher leverage. It will likely encourage firms to focus on sophisticated retail clients and professional clients, rather than ‘churning’ less sophisticated retail clients. The proposed initial margin protection will therefore help ensure that CFD providers act on terms that are in the best interests of their clients instead of seeking to attract new clients or to expand market share through higher levels of leverage. |
| --- | --- |

(100)

Relatedly, the initial margin protection is also expected to lower the likelihood that CFD providers target a mass retail client through smaller account sizes, supported by higher leverage. It will likely encourage firms to focus on sophisticated retail clients and professional clients, rather than ‘churning’ less sophisticated retail clients. The proposed initial margin protection will therefore help ensure that CFD providers act on terms that are in the best interests of their clients instead of seeking to attract new clients or to expand market share through higher levels of leverage.

| (101) | The initial margin protection will also help address the risk of potential conflicts of interest particularly when CFD providers do not hedge their clients' trades and so benefit directly from client losses, by reducing the risk of firms profiting from losing client trades and expected profits from trading. It reflects a common investor protection approach taken by a number of other international jurisdictions (103). |
| --- | --- |

(101)

The initial margin protection will also help address the risk of potential conflicts of interest particularly when CFD providers do not hedge their clients' trades and so benefit directly from client losses, by reducing the risk of firms profiting from losing client trades and expected profits from trading. It reflects a common investor protection approach taken by a number of other international jurisdictions (103).

103

| (102) | The initial margin protection for each underlying has been set according to the volatility of that underlying using a simulation model to assess the likelihood of a client losing 50 % of their initial investment over an appropriate holding period (104). Specifically, ESMA undertook a quantitative simulation of the distribution of returns an investor in a single CFD might expect to receive at different leverage levels. The starting point of the simulation was approximately 10 years of daily market price data (in most cases) for various underlying types commonly used in CFDs sold to retail clients (105). For the purpose of the analysis, ESMA considered a CFD that is automatically closed out if the margin reaches 50 % of its initial value. The simulated probability with which close-out occurs depends on (and is increasing in) the given leverage. A metric examined was the probability of (automatic) close-out as a function of leverage. This metric allows for leverage limits to be set according to a model that is expected to address detriment on a consistent basis across different underlying types. |
| --- | --- |

(102)

The initial margin protection for each underlying has been set according to the volatility of that underlying using a simulation model to assess the likelihood of a client losing 50 % of their initial investment over an appropriate holding period (104). Specifically, ESMA undertook a quantitative simulation of the distribution of returns an investor in a single CFD might expect to receive at different leverage levels. The starting point of the simulation was approximately 10 years of daily market price data (in most cases) for various underlying types commonly used in CFDs sold to retail clients (105). For the purpose of the analysis, ESMA considered a CFD that is automatically closed out if the margin reaches 50 % of its initial value. The simulated probability with which close-out occurs depends on (and is increasing in) the given leverage. A metric examined was the probability of (automatic) close-out as a function of leverage. This metric allows for leverage limits to be set according to a model that is expected to address detriment on a consistent basis across different underlying types.

104

105

| (103) | ESMA considered that, given the retail nature of investors and statistics on the distributions of CFD holding periods (using data collected by NCAs) it was appropriate to set initial margin protection by assuming retail clients hold an asset for at least 1 day. To provide a consistent reference point, ESMA then simulated what leverage would lead to margin close-out with a 5 % probability, for different underlying assets. The range of results within each asset class then informed the selection of leverage limits. In most cases, the limits were set conservatively towards the lower end of the range. Consideration was given to how widely traded different assets are. For example, among CFDs on commodities, oil and gold are both commonly traded by retail clients, but simulations indicate that the leverage implying a 5 % probability of margin close-out for CFDs in gold is around twice that of CFDs in oil. The leverage limit for CFDs in gold is accordingly different to that for those in oil and other commodities. Determining initial margin protection in this way, in particular through simulated positions lasting at least 1 day, provides a consistent and necessary level of protection for retail clients who may not actively monitor their position over the course of a trading day or may not be able to assess the need for quick reactions in light of the volatility of the underlying market. In the case of CFDs on equities, data suggest that holdings are typically longer than for other assets, and consideration was given to holding periods of up to 5 days. |
| --- | --- |

(103)

ESMA considered that, given the retail nature of investors and statistics on the distributions of CFD holding periods (using data collected by NCAs) it was appropriate to set initial margin protection by assuming retail clients hold an asset for at least 1 day. To provide a consistent reference point, ESMA then simulated what leverage would lead to margin close-out with a 5 % probability, for different underlying assets. The range of results within each asset class then informed the selection of leverage limits. In most cases, the limits were set conservatively towards the lower end of the range. Consideration was given to how widely traded different assets are. For example, among CFDs on commodities, oil and gold are both commonly traded by retail clients, but simulations indicate that the leverage implying a 5 % probability of margin close-out for CFDs in gold is around twice that of CFDs in oil. The leverage limit for CFDs in gold is accordingly different to that for those in oil and other commodities. Determining initial margin protection in this way, in particular through simulated positions lasting at least 1 day, provides a consistent and necessary level of protection for retail clients who may not actively monitor their position over the course of a trading day or may not be able to assess the need for quick reactions in light of the volatility of the underlying market. In the case of CFDs on equities, data suggest that holdings are typically longer than for other assets, and consideration was given to holding periods of up to 5 days.

| (104) | ESMA considered alternative approaches to the calibration of the initial margin protection. For example, an alternative would be to set a single leverage limit for all CFDs irrespective of their underlying. However, ESMA considered it appropriate to distinguish between different underlying types given differences in historic price volatility between different classes of underlying, in addition to differences in typical fee structures within the current CFD firm population (106) and typical client behaviour. |
| --- | --- |

(104)

ESMA considered alternative approaches to the calibration of the initial margin protection. For example, an alternative would be to set a single leverage limit for all CFDs irrespective of their underlying. However, ESMA considered it appropriate to distinguish between different underlying types given differences in historic price volatility between different classes of underlying, in addition to differences in typical fee structures within the current CFD firm population (106) and typical client behaviour.

106

| (105) | While implementing the initial margin protection will imply certain costs for those CFD providers that would need to adjust the leverage limits currently made available to retail clients, ESMA expects these costs will not be disproportionate to the benefits of introducing such a protection. ESMA also notes that it is already standard practice for CFD providers routinely to modify the leverage offered to their clients based on the changing risk profile of certain assets. |
| --- | --- |

(105)

While implementing the initial margin protection will imply certain costs for those CFD providers that would need to adjust the leverage limits currently made available to retail clients, ESMA expects these costs will not be disproportionate to the benefits of introducing such a protection. ESMA also notes that it is already standard practice for CFD providers routinely to modify the leverage offered to their clients based on the changing risk profile of certain assets.

5.2.   Margin close-out protection

Margin close-out protection

| (106) | Another measure to protect retail clients is the margin close-out protection. This measure complements the introduction of initial margin protection and mitigates the risk of retail clients losing significant funds in excess of the funds they have invested in a CFD, under normal market circumstances. |
| --- | --- |

(106)

Another measure to protect retail clients is the margin close-out protection. This measure complements the introduction of initial margin protection and mitigates the risk of retail clients losing significant funds in excess of the funds they have invested in a CFD, under normal market circumstances.

| (107) | The provision of a margin close-out protection and the standardisation of the percentage at which CFD providers are required to close-out a client's open CFD (at 50 % of the initial required margin) is also designed to address the inconsistent application of margin close-out practices by CFD providers. Some NCAs have observed that CFD providers allow their clients' funds to fall to 0 – 30 % of the initial margin required to open a CFD (107). By allowing clients to erode their margin close to zero, providers are placing clients at risk of losing more than their deposited funds particularly during a gapping event. Conversely, a too high level of margin close-out would expose clients to be frequently closed out which might not be in their interest. The 50 % threshold set out in ESMA's measure mitigates the risk of substantial loss by retail clients and is therefore proportionate. |
| --- | --- |

(107)

The provision of a margin close-out protection and the standardisation of the percentage at which CFD providers are required to close-out a client's open CFD (at 50 % of the initial required margin) is also designed to address the inconsistent application of margin close-out practices by CFD providers. Some NCAs have observed that CFD providers allow their clients' funds to fall to 0 – 30 % of the initial margin required to open a CFD (107). By allowing clients to erode their margin close to zero, providers are placing clients at risk of losing more than their deposited funds particularly during a gapping event. Conversely, a too high level of margin close-out would expose clients to be frequently closed out which might not be in their interest. The 50 % threshold set out in ESMA's measure mitigates the risk of substantial loss by retail clients and is therefore proportionate.

107

| (108) | In the call for evidence, ESMA described a margin close-out protection per individual position. Such approach was intended to address a number of concerns about the application of this measure on an CFD trading account basis in the current market. In particular, as initial margin protection is being applied based on the underlying of the CFD, applying a margin close-out rule on a per position basis would ensure the effective application of the initial margin protection for each underlying class and ensure a hard cap on leverage available per underlying class. Another reason for such an approach was the intention to help ensure that retail clients are aware and understand their exposure to each individual underlying. ESMA originally proposed the application of a margin close-out rule at 50 % of initial margin on a per position basis to provide an effective protection for retail clients while also reducing the complexity of the product, and with improving retail clients' understanding of their exposure. |
| --- | --- |

(108)

In the call for evidence, ESMA described a margin close-out protection per individual position. Such approach was intended to address a number of concerns about the application of this measure on an CFD trading account basis in the current market. In particular, as initial margin protection is being applied based on the underlying of the CFD, applying a margin close-out rule on a per position basis would ensure the effective application of the initial margin protection for each underlying class and ensure a hard cap on leverage available per underlying class. Another reason for such an approach was the intention to help ensure that retail clients are aware and understand their exposure to each individual underlying. ESMA originally proposed the application of a margin close-out rule at 50 % of initial margin on a per position basis to provide an effective protection for retail clients while also reducing the complexity of the product, and with improving retail clients' understanding of their exposure.

| (109) | ESMA has taken into account the responses provided to its call for evidence. A vast majority of the providers, brokers and trade organisations that responded to the call for evidence listed their concerns about a margin close-out rule on a per position basis. Regarding impacts on firms, key points raised were the prospect of significant IT implementation costs and ongoing monitoring costs. Many responses from firms also flagged concerns in relation to existing clients who are familiar with close-out per account. Additionally, respondents highlighted that investors that apply specific trading strategies would no longer be able to use these strategies effectively, as individual positions could be closed at a certain moment if clients do not top up their margins for the specific position, therefore resulting in unanticipated market exposure on the remaining positions. Another argument identifying potential negative consequences of margin close-out on a per position basis was that due to the closure of positions, clients would be required to re-open positions which could lead to higher costs of trading. |
| --- | --- |

(109)

ESMA has taken into account the responses provided to its call for evidence. A vast majority of the providers, brokers and trade organisations that responded to the call for evidence listed their concerns about a margin close-out rule on a per position basis. Regarding impacts on firms, key points raised were the prospect of significant IT implementation costs and ongoing monitoring costs. Many responses from firms also flagged concerns in relation to existing clients who are familiar with close-out per account. Additionally, respondents highlighted that investors that apply specific trading strategies would no longer be able to use these strategies effectively, as individual positions could be closed at a certain moment if clients do not top up their margins for the specific position, therefore resulting in unanticipated market exposure on the remaining positions. Another argument identifying potential negative consequences of margin close-out on a per position basis was that due to the closure of positions, clients would be required to re-open positions which could lead to higher costs of trading.

| (110) | Similar concerns with regard to negative consequences for investors of margin close-out on a per position basis were mentioned by a substantial part of the responses from individual investors to the call for evidence. The most frequent arguments were that a per position rule would inhibit the use of certain trading strategies, and would require investors to continuously monitor their positions as they could no longer rely on certain hedges they placed. |
| --- | --- |

(110)

Similar concerns with regard to negative consequences for investors of margin close-out on a per position basis were mentioned by a substantial part of the responses from individual investors to the call for evidence. The most frequent arguments were that a per position rule would inhibit the use of certain trading strategies, and would require investors to continuously monitor their positions as they could no longer rely on certain hedges they placed.

| (111) | Most consumer representatives were in favour of the proposed measures or even proposed considerably more restrictive measures in relation to CFDs (such as a full ban of the marketing, distribution or sale of these financial instruments to retail clients). |
| --- | --- |

(111)

Most consumer representatives were in favour of the proposed measures or even proposed considerably more restrictive measures in relation to CFDs (such as a full ban of the marketing, distribution or sale of these financial instruments to retail clients).

| (112) | There were also responses from firms in the call for evidence that were in favour of the per position margin close-out rule proposed in the call for evidence. These firms indicated that they already apply such an approach and are content with the outcomes of it. |
| --- | --- |

(112)

There were also responses from firms in the call for evidence that were in favour of the per position margin close-out rule proposed in the call for evidence. These firms indicated that they already apply such an approach and are content with the outcomes of it.

| (113) | ESMA conducted analysis on expected investor outcomes according to whether a margin close-out rule was applied per position (a CFD will be closed out when its value falls below 50 % of the value of the initial margin) or per CFD trading account (a CFD will be closed out when the value of all open CFDs connected with the trading account together with all funds in that account falls below 50 % of the value of the total initial margin for all those open CFDs). In particular, it assessed the frequency of close-out and the impact of crystallising clients losses for a simulated portfolio of CFD positions under each scenario. This analysis did not estimate precise numerical outcomes, reflecting that there is an extremely large range of different potential portfolios that an investor could hold. Instead, the analysis considered whether either of the two bases would be expected in general to lead to better outcomes for investors. The general conclusion was that the better investor outcome for a position or account basis of margin close-out depends on the price movements of the underlyings of the CFDs in investment portfolios. The reason for this is that following a close-out which would happen on one basis but not the other, the price of an underlying may recover or may deteriorate. |
| --- | --- |

(113)

ESMA conducted analysis on expected investor outcomes according to whether a margin close-out rule was applied per position (a CFD will be closed out when its value falls below 50 % of the value of the initial margin) or per CFD trading account (a CFD will be closed out when the value of all open CFDs connected with the trading account together with all funds in that account falls below 50 % of the value of the total initial margin for all those open CFDs). In particular, it assessed the frequency of close-out and the impact of crystallising clients losses for a simulated portfolio of CFD positions under each scenario. This analysis did not estimate precise numerical outcomes, reflecting that there is an extremely large range of different potential portfolios that an investor could hold. Instead, the analysis considered whether either of the two bases would be expected in general to lead to better outcomes for investors. The general conclusion was that the better investor outcome for a position or account basis of margin close-out depends on the price movements of the underlyings of the CFDs in investment portfolios. The reason for this is that following a close-out which would happen on one basis but not the other, the price of an underlying may recover or may deteriorate.

| (114) | In general, close-out would be expected to happen slightly more frequently under a position basis, assuming an investor's portfolio were the same in each case. However, close-out is expected to be rare under either basis, due to the initial margin protection. For clients with one single position in their CFD trading account, there would not be any difference between the account basis and the position basis. From the call for evidence, it is clear that there are many retail CFD trading accounts that include just one position. |
| --- | --- |

(114)

In general, close-out would be expected to happen slightly more frequently under a position basis, assuming an investor's portfolio were the same in each case. However, close-out is expected to be rare under either basis, due to the initial margin protection. For clients with one single position in their CFD trading account, there would not be any difference between the account basis and the position basis. From the call for evidence, it is clear that there are many retail CFD trading accounts that include just one position.

| (115) | While the difference in outcomes resulting from the per position basis versus the per account basis is expected to be small for many investors (but cannot be precisely quantified in the absence of a representative portfolio), the call for evidence responses highlighted additional reasons why an account basis may be better for some investors. Firstly, in allowing gains from one position to offset losses from another, an account basis supports a diverse portfolio of investments. Secondly, to the extent close-out happens less frequently on an account basis, it reduces the scope for investors to bear costs arising from re-entering positions. |
| --- | --- |

(115)

While the difference in outcomes resulting from the per position basis versus the per account basis is expected to be small for many investors (but cannot be precisely quantified in the absence of a representative portfolio), the call for evidence responses highlighted additional reasons why an account basis may be better for some investors. Firstly, in allowing gains from one position to offset losses from another, an account basis supports a diverse portfolio of investments. Secondly, to the extent close-out happens less frequently on an account basis, it reduces the scope for investors to bear costs arising from re-entering positions.

| (116) | Taking into consideration the above analysis and the responses from the call for evidence, ESMA considers a standardised margin close-out rule per account basis at 50 % of the total initial margin protection, as an individual measure to take in addition to the other measures described in this Decision, is more proportionate as a minimum protection to be applied. In particular, this rule should provide for close-out of one or more CFDs on terms most favourable to the retail client to ensure that the value of the account does not fall lower than 50 % of the total initial margin protection that was paid to enter into all currently open CFDs at any point in time. The value of the account for these purposes should be determined by the funds in that account together with any unrealised net profits from open CFDs connected to that account. |
| --- | --- |

(116)

Taking into consideration the above analysis and the responses from the call for evidence, ESMA considers a standardised margin close-out rule per account basis at 50 % of the total initial margin protection, as an individual measure to take in addition to the other measures described in this Decision, is more proportionate as a minimum protection to be applied. In particular, this rule should provide for close-out of one or more CFDs on terms most favourable to the retail client to ensure that the value of the account does not fall lower than 50 % of the total initial margin protection that was paid to enter into all currently open CFDs at any point in time. The value of the account for these purposes should be determined by the funds in that account together with any unrealised net profits from open CFDs connected to that account.

| (117) | The margin close-out protection proposed by ESMA does not prevent a provider from applying a per position close-out rule at 50 % of the initial margin requirement of the specific position instead of a per account close-out rule; indeed this could reduce the complexity for retail clients. Furthermore, by applying a per position close-out rule at 50 %, the provider inherently fulfils the close-out requirement on a per account basis as all the single positions will be closed in accordance with the 50 % close-out rule. |
| --- | --- |

(117)

The margin close-out protection proposed by ESMA does not prevent a provider from applying a per position close-out rule at 50 % of the initial margin requirement of the specific position instead of a per account close-out rule; indeed this could reduce the complexity for retail clients. Furthermore, by applying a per position close-out rule at 50 %, the provider inherently fulfils the close-out requirement on a per account basis as all the single positions will be closed in accordance with the 50 % close-out rule.

5.3.   Negative balance protection

Negative balance protection

| (118) | The negative balance protection aims at protecting retail clients in exceptional circumstances where there is a price change in the underlying that is sufficiently large and sudden to prevent the CFD provider from closing out the position as required by the margin close-out protection, such that the client has a negative account value. In other words, large market events can cause gapping, preventing the automatic margin close-out protection from being effective. A number of NCAs (108) have observed that, following such events, clients have owed considerably more than they invested, ending up with a negative balance on their CFD trading account. |
| --- | --- |

(118)

The negative balance protection aims at protecting retail clients in exceptional circumstances where there is a price change in the underlying that is sufficiently large and sudden to prevent the CFD provider from closing out the position as required by the margin close-out protection, such that the client has a negative account value. In other words, large market events can cause gapping, preventing the automatic margin close-out protection from being effective. A number of NCAs (108) have observed that, following such events, clients have owed considerably more than they invested, ending up with a negative balance on their CFD trading account.

108

| (119) | The purpose of a negative balance protection is to ensure that an investor's maximum losses from trading CFDs, including all related costs, are limited to the total funds related to trading CFDs that are in the investor's CFD trading account. This should include any funds yet to be paid into that account due to net profits from the closure of open CFDs connected to that account. An investor should not incur any additional liability connected with its trading of CFDs. Other accounts should not be part of the investor's capital at risk. In case a trading account also includes other financial instruments (for example, UCITS or shares), only the funds explicitly dedicated to CFD trading, and not those dedicated to other financial instruments, are at risk. |
| --- | --- |

(119)

The purpose of a negative balance protection is to ensure that an investor's maximum losses from trading CFDs, including all related costs, are limited to the total funds related to trading CFDs that are in the investor's CFD trading account. This should include any funds yet to be paid into that account due to net profits from the closure of open CFDs connected to that account. An investor should not incur any additional liability connected with its trading of CFDs. Other accounts should not be part of the investor's capital at risk. In case a trading account also includes other financial instruments (for example, UCITS or shares), only the funds explicitly dedicated to CFD trading, and not those dedicated to other financial instruments, are at risk.

| (120) | The purpose of the negative balance protection is also to provide a ‘backstop’ in case of extreme market conditions. ESMA conducted analysis of the Swiss franc event in January 2015 to consider its direct impact on investors across a number of scenarios (109). These scenarios were the following:






  (i) | protection against any negative balance on a CFD trading account held by a retail client; |
| --- | --- | --- |

(120)

The purpose of the negative balance protection is also to provide a ‘backstop’ in case of extreme market conditions. ESMA conducted analysis of the Swiss franc event in January 2015 to consider its direct impact on investors across a number of scenarios (109). These scenarios were the following:

109

(i)

protection against any negative balance on a CFD trading account held by a retail client;

| (ii) | protection against any negative balance on each CFD position held by a retail client; and |
| --- | --- |

(ii)

protection against any negative balance on each CFD position held by a retail client; and

| (iii) | no negative balance protection. |
| --- | --- |

(iii)

no negative balance protection.

| (121) | In assessing these options, ESMA noted that the direct impact on investors resulting from the different options in the case of extreme market events needed to be weighed against the resulting ongoing costs of providing this protection. In particular, CFD providers would face ongoing costs attributable to additional capital or hedging, as part of their risk management. Some portion of these costs could in turn be passed through to investors themselves in the form of higher spreads or other charges. |
| --- | --- |

(121)

In assessing these options, ESMA noted that the direct impact on investors resulting from the different options in the case of extreme market events needed to be weighed against the resulting ongoing costs of providing this protection. In particular, CFD providers would face ongoing costs attributable to additional capital or hedging, as part of their risk management. Some portion of these costs could in turn be passed through to investors themselves in the form of higher spreads or other charges.

| (122) | On the other hand, an important risk of major consumer detriment that arises in the absence of negative balance protection is the potential for an investor to owe money to a firm as a result of extreme market conditions. Such a situation is especially detrimental for investors without considerable liquid wealth (110). ESMA decided to adopt negative balance protection per CFD trading account as the way to address this source of potential major detriment while minimising associated costs to firms and investors. In particular, ESMA considered that the imposition of a negative balance protection per each CFD would have risked imposing disproportionate costs on investors and firms. If a negative balance protection per position were introduced, firms would be required to forgive any losses by the client in excess of the funds dedicated to that position, including initial margin and any additional margin paid by the client. As negative balance protection would not enable the netting of a significant loss with other positions in a client's portfolio, a per position rule would increase the market risk assumed by firms. This would likely result in an increase of the capital requirements for firms, the costs of which would likely be passed on to retail clients. |
| --- | --- |

(122)

On the other hand, an important risk of major consumer detriment that arises in the absence of negative balance protection is the potential for an investor to owe money to a firm as a result of extreme market conditions. Such a situation is especially detrimental for investors without considerable liquid wealth (110). ESMA decided to adopt negative balance protection per CFD trading account as the way to address this source of potential major detriment while minimising associated costs to firms and investors. In particular, ESMA considered that the imposition of a negative balance protection per each CFD would have risked imposing disproportionate costs on investors and firms. If a negative balance protection per position were introduced, firms would be required to forgive any losses by the client in excess of the funds dedicated to that position, including initial margin and any additional margin paid by the client. As negative balance protection would not enable the netting of a significant loss with other positions in a client's portfolio, a per position rule would increase the market risk assumed by firms. This would likely result in an increase of the capital requirements for firms, the costs of which would likely be passed on to retail clients.

110

| (123) | Regarding the proposal on negative balance protection, a majority of the providers, brokers and trade organisations expressed a positive view. Some providers asked for further clarification of this rule. The concerns flagged were related to the impact of the measures on firms' capital requirements and the possibility that clients could use this to speculate against the providers by entering two opposite positions with the same broker on different accounts. The consumer representatives were positive towards the proposed measures, including negative balance protection. In general, the individuals that responded to the call for evidence and explicitly referred in their response to the proposals on a negative balance protection were positive on these proposals. |
| --- | --- |

(123)

Regarding the proposal on negative balance protection, a majority of the providers, brokers and trade organisations expressed a positive view. Some providers asked for further clarification of this rule. The concerns flagged were related to the impact of the measures on firms' capital requirements and the possibility that clients could use this to speculate against the providers by entering two opposite positions with the same broker on different accounts. The consumer representatives were positive towards the proposed measures, including negative balance protection. In general, the individuals that responded to the call for evidence and explicitly referred in their response to the proposals on a negative balance protection were positive on these proposals.

| (124) | ESMA has considered the effects on CFD providers for providing negative balance protection as well as the substantial detriment to retail clients, which can arise without this protection. ESMA considers that, on balance, negative balance protection on an account basis addresses the investor protection concern identified and is proportionate. |
| --- | --- |

(124)

ESMA has considered the effects on CFD providers for providing negative balance protection as well as the substantial detriment to retail clients, which can arise without this protection. ESMA considers that, on balance, negative balance protection on an account basis addresses the investor protection concern identified and is proportionate.

5.4.   Risk warnings

Risk warnings

| (125) | Another measure to address risks to retail clients in relation to CFDs is to require the provision of standardised and effective firm specific risk warnings including information on the percentage of retail client accounts' losses. As previously noted, several NCAs have noted the low quality of risk warnings provided to clients and have reported on CFD providers often failing to clearly set out the high-risk and complex nature of the products. In particular, risk warnings often do not clearly explain the potential for rapid losses that could exceed the money invested by clients, or the messages are diluted by the way warnings are presented or by statements about potential profits. |
| --- | --- |

(125)

Another measure to address risks to retail clients in relation to CFDs is to require the provision of standardised and effective firm specific risk warnings including information on the percentage of retail client accounts' losses. As previously noted, several NCAs have noted the low quality of risk warnings provided to clients and have reported on CFD providers often failing to clearly set out the high-risk and complex nature of the products. In particular, risk warnings often do not clearly explain the potential for rapid losses that could exceed the money invested by clients, or the messages are diluted by the way warnings are presented or by statements about potential profits.

| (126) | In their responses to the call for evidence, only a minority of the providers and brokers opposed introducing a standardised risk warning. Some firms flagged that they appreciate a firm-specific loss percentage instead of a more standardised warning. The consumer representatives were mixed as almost half of the responses indicated that they were in favour of more strict measures on CFDs (for example a ban). The consumer representatives that explicitly mentioned the risk warning in their response were positive on the proposal, as long it is considered in combination with the other proposed measures. |
| --- | --- |

(126)

In their responses to the call for evidence, only a minority of the providers and brokers opposed introducing a standardised risk warning. Some firms flagged that they appreciate a firm-specific loss percentage instead of a more standardised warning. The consumer representatives were mixed as almost half of the responses indicated that they were in favour of more strict measures on CFDs (for example a ban). The consumer representatives that explicitly mentioned the risk warning in their response were positive on the proposal, as long it is considered in combination with the other proposed measures.

| (127) | The firm specific risk warnings introduced in this Decision would provide retail clients with essential information about these particular products, namely the percentage of retail accounts losing money when trading CFDs. A study found that a standardised risk warning significantly improved a retail client's understanding of the product, including the possibility of losing more money than they invested and the likelihood of making a profit (111). |
| --- | --- |

(127)

The firm specific risk warnings introduced in this Decision would provide retail clients with essential information about these particular products, namely the percentage of retail accounts losing money when trading CFDs. A study found that a standardised risk warning significantly improved a retail client's understanding of the product, including the possibility of losing more money than they invested and the likelihood of making a profit (111).

111

| (128) | A requirement for CFD providers to state the percentage of retail client accounts that are at a loss is designed to offset the tendency of CFD providers to highlight the potential profits over losses. |
| --- | --- |

(128)

A requirement for CFD providers to state the percentage of retail client accounts that are at a loss is designed to offset the tendency of CFD providers to highlight the potential profits over losses.

| (129) | Furthermore, the warnings are expected to support retail clients in making an informed decision about whether they wish to proceed with a high risk product that is more likely to result in a loss than a gain. |
| --- | --- |

(129)

Furthermore, the warnings are expected to support retail clients in making an informed decision about whether they wish to proceed with a high risk product that is more likely to result in a loss than a gain.

| (130) | In order to warn investors of the risk of losses related to investing in CFDs, ESMA considers that each CFD provider should inform their clients of the percentage of its CFD trading accounts of retail clients that lost money over the last 12 month period. To ensure the figure is kept up-to-date, this calculation should be updated on a quarterly basis. The percentage shown should be presented in a simple and clear manner as part of a risk warning in every communication of the provider. |
| --- | --- |

(130)

In order to warn investors of the risk of losses related to investing in CFDs, ESMA considers that each CFD provider should inform their clients of the percentage of its CFD trading accounts of retail clients that lost money over the last 12 month period. To ensure the figure is kept up-to-date, this calculation should be updated on a quarterly basis. The percentage shown should be presented in a simple and clear manner as part of a risk warning in every communication of the provider.

| (131) | In order to determine whether an account lost money, both the realised and unrealised profits or losses have to be taken into account. Realised profits and losses relate to the CFD positions that were closed during the calculation period. Unrealised profits and losses relate to the value of open positions at the end of the calculation period. In order to provide a complete picture of the percentage of accounts that resulted in a profit or loss all costs in relation to the trading of CFDs should be taken into account in the calculation. |
| --- | --- |

(131)

In order to determine whether an account lost money, both the realised and unrealised profits or losses have to be taken into account. Realised profits and losses relate to the CFD positions that were closed during the calculation period. Unrealised profits and losses relate to the value of open positions at the end of the calculation period. In order to provide a complete picture of the percentage of accounts that resulted in a profit or loss all costs in relation to the trading of CFDs should be taken into account in the calculation.

| (132) | For newly established CFD providers and CFD providers that have not had any open CFD positions in the past 12 months, it is not possible to calculate such a percentage over the last 12 months. This Decision prescribes for these firms a standardised risk warning in which reference is made to the percentages found by NCAs in their existing studies. |
| --- | --- |

(132)

For newly established CFD providers and CFD providers that have not had any open CFD positions in the past 12 months, it is not possible to calculate such a percentage over the last 12 months. This Decision prescribes for these firms a standardised risk warning in which reference is made to the percentages found by NCAs in their existing studies.

| (133) | As mentioned above, almost all providers that responded to the call for evidence supported or were neutral towards a standardised risk warning. The respondents who were negative either questioned the effectiveness of a risk warning or disagreed with the percentages found by NCA studies. A frequently made comment is that firms requested a more condensed version of the risk warning which could be used for digital marketing by the firms. |
| --- | --- |

(133)

As mentioned above, almost all providers that responded to the call for evidence supported or were neutral towards a standardised risk warning. The respondents who were negative either questioned the effectiveness of a risk warning or disagreed with the percentages found by NCA studies. A frequently made comment is that firms requested a more condensed version of the risk warning which could be used for digital marketing by the firms.

| (134) | ESMA has considered the possibility of requiring a generic risk warning stating only the risk that retail clients may lose money rapidly due to the leverage of CFDs or a more specific risk warning based on average losses for retail clients based on the studies of NCAs. The former option has been discarded because it did not effectively draw retail clients' attention to the actual risk, specific to CFDs trading. The latter option has been discarded because these studies do not reflect any specificities (for example a firm offering only certain types of CFDs). Although firm specific calculations may be more burdensome for providers than a generic risk warning, in line with feedback from the call for evidence, ESMA believes they are necessary to properly warn investors of the risk of losses. |
| --- | --- |

(134)

ESMA has considered the possibility of requiring a generic risk warning stating only the risk that retail clients may lose money rapidly due to the leverage of CFDs or a more specific risk warning based on average losses for retail clients based on the studies of NCAs. The former option has been discarded because it did not effectively draw retail clients' attention to the actual risk, specific to CFDs trading. The latter option has been discarded because these studies do not reflect any specificities (for example a firm offering only certain types of CFDs). Although firm specific calculations may be more burdensome for providers than a generic risk warning, in line with feedback from the call for evidence, ESMA believes they are necessary to properly warn investors of the risk of losses.

| (135) | One risk ESMA and NCAs acknowledge of the firm-specific loss percentages is that these percentages will be used for marketing instead of the original purpose, being the risk warning. For these reasons NCAs should monitor that investment firms will not use the firm-specific percentages in an inappropriate manner and will review the application of this measure. |
| --- | --- |

(135)

One risk ESMA and NCAs acknowledge of the firm-specific loss percentages is that these percentages will be used for marketing instead of the original purpose, being the risk warning. For these reasons NCAs should monitor that investment firms will not use the firm-specific percentages in an inappropriate manner and will review the application of this measure.

| (136) | In line with feedback from the call for evidence, ESMA considers a more proportionate approach would also adapt the risk warning to the type of communication channels used. For this reason, an abbreviated risk warning for communications through a non-durable medium, such as mobile applications or social media posts, is prescribed in this Decision. |
| --- | --- |

(136)

In line with feedback from the call for evidence, ESMA considers a more proportionate approach would also adapt the risk warning to the type of communication channels used. For this reason, an abbreviated risk warning for communications through a non-durable medium, such as mobile applications or social media posts, is prescribed in this Decision.

5.5.   The prohibition of monetary and non-monetary benefits

The prohibition of monetary and non-monetary benefits

| (137) | A final measure to address risks relating to the distribution of CFDs to retail clients is a ban on monetary (for example so called ‘trading bonuses’) and certain types of non-monetary benefits. Financial promotions offering bonuses or other incentives to trade CFDs often distract retail clients from the high-risk nature of CFD products. They draw in retail clients who may not otherwise choose to invest in these products. Such benefits are often contingent on clients depositing money on the account or on executing a certain volume of trades. |
| --- | --- |

(137)

A final measure to address risks relating to the distribution of CFDs to retail clients is a ban on monetary (for example so called ‘trading bonuses’) and certain types of non-monetary benefits. Financial promotions offering bonuses or other incentives to trade CFDs often distract retail clients from the high-risk nature of CFD products. They draw in retail clients who may not otherwise choose to invest in these products. Such benefits are often contingent on clients depositing money on the account or on executing a certain volume of trades.

| (138) | ESMA's prohibition of benefits however does not capture information and research tools provided to retail clients insofar as they relate to CFDs (excluded non-monetary benefits), as these would help clients' decision-making. |
| --- | --- |

(138)

ESMA's prohibition of benefits however does not capture information and research tools provided to retail clients insofar as they relate to CFDs (excluded non-monetary benefits), as these would help clients' decision-making.

| (139) | A majority of the responses from providers, trade organisations and brokers were in favour of the measures in relation to incentivisation of clients. Also the consumer representatives that explicitly referred to these measures were positive. Considering the risks posed to retail clients of these benefits, ESMA considers it is necessary and proportionate to restrict them. |
| --- | --- |

(139)

A majority of the responses from providers, trade organisations and brokers were in favour of the measures in relation to incentivisation of clients. Also the consumer representatives that explicitly referred to these measures were positive. Considering the risks posed to retail clients of these benefits, ESMA considers it is necessary and proportionate to restrict them.

5.6.   Overall proportionality

Overall proportionality

| (140) | ESMA has reached the limit of the effectiveness of its non-binding tools in this area. In this context, specifically with regard to product governance, ESMA also acknowledges that product governance principles already form part of the financial services supervisory culture in the Union. In November 2013, the European Supervisory Authorities (‘ESAs’) issued a Joint Position on ‘Manufacturers’ Product Oversight and Governance Processes' setting out high-level principles applicable to the oversight and governance processes of financial instruments (112). In February 2014, ESMA issued an opinion on ‘MiFID practices for firms selling complex products’ (113) and, in March 2014, it issued an opinion on ‘Structured Retail Products — Good practices for product governance arrangements’ (114). Furthermore, as of March 2007, guidance setting out product governance principles is in place in the UK (115). |
| --- | --- |

(140)

ESMA has reached the limit of the effectiveness of its non-binding tools in this area. In this context, specifically with regard to product governance, ESMA also acknowledges that product governance principles already form part of the financial services supervisory culture in the Union. In November 2013, the European Supervisory Authorities (‘ESAs’) issued a Joint Position on ‘Manufacturers’ Product Oversight and Governance Processes' setting out high-level principles applicable to the oversight and governance processes of financial instruments (112). In February 2014, ESMA issued an opinion on ‘MiFID practices for firms selling complex products’ (113) and, in March 2014, it issued an opinion on ‘Structured Retail Products — Good practices for product governance arrangements’ (114). Furthermore, as of March 2007, guidance setting out product governance principles is in place in the UK (115).

112

113

114

115

| (141) | Despite these supervisory principles and the regulatory requirements described in this Decision, the detriment in relation to the marketing, distribution or sale of CFDs to retail clients had continued to develop over the past years. |
| --- | --- |

(141)

Despite these supervisory principles and the regulatory requirements described in this Decision, the detriment in relation to the marketing, distribution or sale of CFDs to retail clients had continued to develop over the past years.

| (142) | ESMA's overall measure is necessary and proportionate to address the investor protection concern identified. In general, it is expected that it will reduce abnormal and significant losses experienced by retail clients on CFDs as well as enhance retail clients' awareness of the risks related to these products. The benefits gained from addressing the investor protection concern identified in the way proposed outweigh the potential consequences for CFD providers, including through implementation costs associated with complying with these requirements and a potential reduction in CFD providers' revenues (through lower volumes of trading, lower total transaction fees paid by clients and lower client losses). |
| --- | --- |

(142)

ESMA's overall measure is necessary and proportionate to address the investor protection concern identified. In general, it is expected that it will reduce abnormal and significant losses experienced by retail clients on CFDs as well as enhance retail clients' awareness of the risks related to these products. The benefits gained from addressing the investor protection concern identified in the way proposed outweigh the potential consequences for CFD providers, including through implementation costs associated with complying with these requirements and a potential reduction in CFD providers' revenues (through lower volumes of trading, lower total transaction fees paid by clients and lower client losses).

| (143) | Additionally, ESMA's measure will apply from 2 months after publication of this Decision in the Official Journal of the European Union (OJEU). This implies a notice period of 2 months after official publication which aims at balancing retail clients' interest to an immediate reduction of the detriment arising from the current trading of CFDs and the need to allow sufficient time to relevant market participants to organise and change their business models in an orderly manner. |
| --- | --- |

(143)

Additionally, ESMA's measure will apply from 2 months after publication of this Decision in the Official Journal of the European Union (OJEU). This implies a notice period of 2 months after official publication which aims at balancing retail clients' interest to an immediate reduction of the detriment arising from the current trading of CFDs and the need to allow sufficient time to relevant market participants to organise and change their business models in an orderly manner.

Official Journal of the European Union

| (144) | This Decision lays down common requirements which aim to provide a necessary minimum level of protection to retail clients across the Union, in addition to existing requirements. It is not intended to prevent NCAs or CFD providers from ensuring a greater level of investor protection, for example, by applying higher initial margins requirements. |
| --- | --- |

(144)

This Decision lays down common requirements which aim to provide a necessary minimum level of protection to retail clients across the Union, in addition to existing requirements. It is not intended to prevent NCAs or CFD providers from ensuring a greater level of investor protection, for example, by applying higher initial margins requirements.

6.   THE MEASURES DO NOT CREATE A RISK OF REGULATORY ARBITRAGE (ARTICLE 40(3)(b) OF REGULATION (EU) No 600/2014)

THE MEASURES DO NOT CREATE A RISK OF REGULATORY ARBITRAGE (ARTICLE 40(3)(b) OF REGULATION (EU) No 600/2014)

| (145) | In light of the nature of the risks identified and the number and type of investors affected and the national measures being proposed by a number of Member States, ESMA's measure will ensure a common minimum approach across the Union. ESMA has also considered the risk that providers currently offering CFDs could try to offer products with comparable features such as options, futures, swaps and forward rate agreements. Respondents to the call for evidence confirmed that there are similarities between CFDs and these products. Therefore, while ESMA's evidence primarily relates to trading in CFDs, ESMA and NCAs will also closely monitor whether such new distribution trends develop raising similar detrimental consequences for retail clients and whether there are any such efforts by CFD providers to circumvent these intervention measures and will act as necessary. |
| --- | --- |

(145)

In light of the nature of the risks identified and the number and type of investors affected and the national measures being proposed by a number of Member States, ESMA's measure will ensure a common minimum approach across the Union. ESMA has also considered the risk that providers currently offering CFDs could try to offer products with comparable features such as options, futures, swaps and forward rate agreements. Respondents to the call for evidence confirmed that there are similarities between CFDs and these products. Therefore, while ESMA's evidence primarily relates to trading in CFDs, ESMA and NCAs will also closely monitor whether such new distribution trends develop raising similar detrimental consequences for retail clients and whether there are any such efforts by CFD providers to circumvent these intervention measures and will act as necessary.

| (146) | In addition, ESMA's temporary intervention measures apply to all providers of CFDs and any other persons knowingly and intentionally contributing to a breach of the measures that fall under the scope of Regulation (EU) No 600/2014. While the scope of the entities falling under Article 40 of this Regulation in respect of fund management companies ultimately needs to be addressed at a legislative level to improve legal certainty (116), ESMA has considered the scope for regulatory arbitrage. ESMA has determined that, in light of the investor detriment evidenced above, the measures proposed have a sufficiently wide scope of application and are therefore able to address the significant investor protection concern arising from the marketing, distribution or sale of CFDs. |
| --- | --- |

(146)

In addition, ESMA's temporary intervention measures apply to all providers of CFDs and any other persons knowingly and intentionally contributing to a breach of the measures that fall under the scope of Regulation (EU) No 600/2014. While the scope of the entities falling under Article 40 of this Regulation in respect of fund management companies ultimately needs to be addressed at a legislative level to improve legal certainty (116), ESMA has considered the scope for regulatory arbitrage. ESMA has determined that, in light of the investor detriment evidenced above, the measures proposed have a sufficiently wide scope of application and are therefore able to address the significant investor protection concern arising from the marketing, distribution or sale of CFDs.

116

7.   CONSULTATION AND NOTICE (ARTICLE 40(3)(c) AND (4) OF REGULATION (EU) No 600/2014)

CONSULTATION AND NOTICE (ARTICLE 40(3)(c) AND (4) OF REGULATION (EU) No 600/2014)

| (147) | As the proposed measures may, to a limited extent, relate to agricultural commodities derivatives, ESMA has consulted the public bodies competent for the oversight, administration and regulation of physical agricultural markets under Council Regulation (EC) No 1234/2007 (117). ESMA received responses from the Bundesministerium für Ernährung und Landwirtschaft (Germany), the Ministry of Agriculture (Latvia) and the Ministry of Agriculture and Forestry (Finland). These respondents have not raised any objections to the adoption of the proposed measures. |
| --- | --- |

(147)

As the proposed measures may, to a limited extent, relate to agricultural commodities derivatives, ESMA has consulted the public bodies competent for the oversight, administration and regulation of physical agricultural markets under Council Regulation (EC) No 1234/2007 (117). ESMA received responses from the Bundesministerium für Ernährung und Landwirtschaft (Germany), the Ministry of Agriculture (Latvia) and the Ministry of Agriculture and Forestry (Finland). These respondents have not raised any objections to the adoption of the proposed measures.

117

| (148) | ESMA has notified NCAs of this proposed Decision, |
| --- | --- |

(148)

ESMA has notified NCAs of this proposed Decision,

HAS ADOPTED THIS DECISION:

Article 1

Definitions

For the purposes of this Decision:

| (a) | ‘contract for differences’ or ‘CFD’ means a derivative other than an option, future, swap or forward rate agreement, the purpose of which is to give the holder a long or short exposure to fluctuations in the price, level or value of an underlying, irrespective of whether it is traded on a trading venue, and that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event; |
| --- | --- |

(a)

‘contract for differences’ or ‘CFD’ means a derivative other than an option, future, swap or forward rate agreement, the purpose of which is to give the holder a long or short exposure to fluctuations in the price, level or value of an underlying, irrespective of whether it is traded on a trading venue, and that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event;

| (b) | ‘excluded non-monetary benefit’ means any non-monetary benefit other than, insofar as they relate to CFDs, information and research tools; |
| --- | --- |

(b)

‘excluded non-monetary benefit’ means any non-monetary benefit other than, insofar as they relate to CFDs, information and research tools;

| (c) | ‘initial margin’ means any payment for the purpose of entering into a CFD, excluding commission, transaction fees and any other related costs; |
| --- | --- |

(c)

‘initial margin’ means any payment for the purpose of entering into a CFD, excluding commission, transaction fees and any other related costs;

| (d) | ‘initial margin protection’ means the initial margin determined by Annex I; |
| --- | --- |

(d)

‘initial margin protection’ means the initial margin determined by Annex I;

| (e) | ‘margin close-out protection’ means the closure of one or more of a retail client's open CFDs on terms most favourable to the client in accordance with Articles 24 and 27 of Directive 2014/65/EU when the sum of funds in the CFD trading account and the unrealised net profits of all open CFDs connected to that account falls to less than half of the total initial margin protection for all those open CFDs; |
| --- | --- |

(e)

‘margin close-out protection’ means the closure of one or more of a retail client's open CFDs on terms most favourable to the client in accordance with Articles 24 and 27 of Directive 2014/65/EU when the sum of funds in the CFD trading account and the unrealised net profits of all open CFDs connected to that account falls to less than half of the total initial margin protection for all those open CFDs;

| (f) | ‘negative balance protection’ means the limit of a retail client's aggregate liability for all CFDs connected to a CFD trading account with a CFD provider to the funds in that CFD trading account. |
| --- | --- |

(f)

‘negative balance protection’ means the limit of a retail client's aggregate liability for all CFDs connected to a CFD trading account with a CFD provider to the funds in that CFD trading account.

CFDs

CFD

CFD

CFD

Article 2

Temporary restriction on CFDs in respect of retail clients

The marketing, distribution or sale to retail clients of CFDs is restricted to circumstances where at least all of the following conditions are met:

CFDs

| (a) | the CFD provider requires the retail client to pay the initial margin protection; |
| --- | --- |

(a)

the CFD provider requires the retail client to pay the initial margin protection;

CFD

| (b) | the CFD provider provides the retail client with the margin close-out protection; |
| --- | --- |

(b)

the CFD provider provides the retail client with the margin close-out protection;

| (c) | the CFD provider provides the retail client with the negative balance protection; |
| --- | --- |

(c)

the CFD provider provides the retail client with the negative balance protection;

| (d) | the CFD provider does not directly or indirectly provide the retail client with a payment, monetary or excluded non-monetary benefit in relation to the marketing, distribution or sale of a CFD, other than the realised profits on any CFD provided; and |
| --- | --- |

(d)

the CFD provider does not directly or indirectly provide the retail client with a payment, monetary or excluded non-monetary benefit in relation to the marketing, distribution or sale of a CFD, other than the realised profits on any CFD provided; and

| (e) | the CFD provider does not send directly or indirectly a communication to or publish information accessible by a retail client relating to the marketing, distribution or sale of a CFD unless it includes the appropriate risk warning specified by and complying with the conditions in Annex II. |
| --- | --- |

(e)

the CFD provider does not send directly or indirectly a communication to or publish information accessible by a retail client relating to the marketing, distribution or sale of a CFD unless it includes the appropriate risk warning specified by and complying with the conditions in Annex II.

Article 3

Prohibition of participating in circumvention activities

It shall be prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent the requirements in Article 2, including by acting as a substitute for the CFD provider.

CFD

Article 4

Entry into force and application

This Decision enters into force on the day following that of its publication in the Official Journal of the European Union.

Official Journal of the European Union

This Decision shall apply from 1 August, 2018 for a period of 3 months.

Done at Paris, 22 May 2018.

For the Board of Supervisors

Steven MAIJOOR

The Chair

---

(1)  
  OJ L 331, 15.12.2010, p. 84.

1

(2)  
  OJ L 173, 12.6.2014, p. 84.

2

(3)  
  OJ L 87, 31.3.2017, p. 90.

3

(4)  The Joint Group is composed of the representative of the Cyprus Securities and Exchange Commission (CY-CySEC), the Cypriot NCA, as well as the representatives of eight NCAs whose jurisdictions have been affected by the services provided by the Cyprus-based providers. The work of the Joint Group resulted in an action plan to be implemented by CY-CySEC that included inter alia extended investigations into CFD providers as well as thematic reviews of a sample of CY-CySEC authorised firms.

4

(5)  Opinion on MIFID practices for firms selling complex financial products (ESMA/2014/146).

5

(6)  Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail clients under MiFID (ESMA-35-36-794). The Q&As were last updated on 31 March 2017.

6

(7)  ESMA and EBA's investor warning on ‘contracts for difference (CFDs)’ of 28 February 2013 (available at: https://www.esma.europa.eu/sites/default/files/library/2015/11/2013-267.pdf); ESMA's investor warning on ‘risks in investing in complex products’ of 7 February 2014 (available at: https://www.esma.europa.eu/sites/default/files/library/2015/11/investor_warning_-_complex_products_20140207_-_en_0.pdf); ESMA's investor warning on ‘CFDs, binary options and other speculative products’ of 25 July 2016 (available at: https://www.esma.europa.eu/sites/default/files/library/2016-1166_warning_on_cfds_binary_options_and_other_speculative_products_0.pdf).

7

(8)  For example, the work of the Joint Group has resulted in CY-CySEC adopting a number of enforcement measures aimed at increasing compliance by investment firms offering speculative products like CFDs.

8

(9)  Call for evidence on potential product intervention measures on contracts for differences and binary options to retail clients (ESMA35-43-904).

9

(10)  The number of respondents is lower than this figure since ESMA also received (i) multiple responses from the same respondents (for example a response on each of the proposed restrictions for CFDs in a separate email), and (ii) duplicative responses from the same respondents.

10

(11)  Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 349).

11

(12)  See recital 35.

12

(13)  See recital 35.

13

(14)  See recitals 73 and 75.

14

(15)  CFDs do not meet the criteria to be regarded as non-complex financial instruments according to the combined reading of Article 25(4) of Directive 2014/65/EU and Article 57 of the Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (OJ L 87, 31.3.2017, p. 1).

15

(16)  A spread quoted by a CFD provider to retail clients may include a mark-up to the market prices the provider faces from an external source, such as a liquidity provider.

16

(17)  See also Article 19(2)(d) of Delegated Regulation (EU) 2017/567 and, in particular, the last sub-factor listed therein, that is the use of inter alia terminology that implies a greater level of security than that which is actually possible or likely.

17

(18)  See for example the joint warning by ESMA, EBA and EIOPA on virtual currencies. Available at: https://www.esma.europa.eu/sites/default/files/library/esma50-164-1284_joint_esas_warning_on_virtual_currenciesl.pdf, the EBA warning from 2013. Available at: https://www.eba.europa.eu/documents/10180/598344/EBA+Warning+on+Virtual+Currencies.pdf, and see IOSCO's webpage for an overview of regulator's warnings on virtual currencies and initial coin offerings. Available at: http://www.iosco.org/publications/?subsection=ico-statements

18

(19)  The Financial Conduct Authority (UK-FCA), the NCA in the UK, has noted leverage levels of 200:1 for smaller position sizes. Furthermore, the UK-FCA has also observed that 200:1 is the typical leverage in ‘major’ currencies, but 500:1 and occasionally higher is available from providers targeting smaller retail clients. L'Autorité des marchés financiers (FR-AMF), the French NCA, has observed leverage of up to 400:1 for the most liquid currency pairs. The Central Bank of Ireland (IE-CBI), the Irish NCA, has observed leverage of up to 400:1. The Bundesanstalt für Finanzdienstleistungsaufsicht (DE-BaFin), the German NCA, highlighted one particular case in Germany of a firm offering a leverage of 400:1 with no margin call. The Commissione Nazionale per le Società e la Borsa (IT-CONSOB), the Italian NCA, and the Комисията за финансов надзор (BG-FSC) the Bulgarian NCA, have observed leverage of up to 500:1.

19

(20)  See recital 15.

20

(21)  However, it is also market practice for CFD providers to set a margin call level which is higher than the margin close-out level and which gives the client the opportunity to post more margin to support their trade. The client can choose to do so at the risk of losing more money. For example, if a provider sets the margin call level at 70 % of an initial margin of 100, the client would be requested to place more money in the trading account once the balance falls to 70 or lower.

21

(22)  ESMA and NCAs have shared information, including through discussion, on an ongoing basis in relation to the offering of CFDs across the Union.

22

(23)  The Ceská národní banka (CZ-CBN), the Czech NCA, has observed that Czech CFD providers usually close-out positions when margin drops under 15 %. DE-BaFIN and BG-FSC have observed that clients' positions would be closed when funds in a client's account fall between 30-50 % of the minimum margin. The Commission de Surveillance du Secteur Financier (LU-CSSF), the Luxembourgish NCA, and l'Autorité des marchés financiers (FR-AMF), the French NCA, have noted that automatic close-outs set by providers are typically between 120-150 % of the initial margin.

23

(24)  The CY-CySEC and the UK-FCA.

24

(25)  For example, at a leverage of 50:1 a price change in excess of 2 %.

25

(26)  For example, the FR-AMF, the DE-BaFIN and the UK-FCA.

26

(27)  According to the DE-BaFin, ‘such products (CFDs) came to the public's attention primarily as a result of the ‘Swiss franc shock’ at the beginning of 2015, when the Swiss National Bank abandoned the cap on the Swiss franc's value against the euro and many CFD investors suffered major losses as a result of having to subsequently make additional payments.’ Available at: https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Pressemitteilung/2016/pm_161208_allgvfg_cfd_en.html

27

(28)  Some respondents to the call for evidence signalled that they lost more than EUR 100 000 while trading CFDs.

28

(29)  See an example where an investor lost EUR 280 000 with only EUR 2 800 invested. Available at: https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Pressemitteilung/2016/pm_161208_allgvfg_cfd_en.html.

29

(30)  Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Lithuania, Malta, Netherlands, Romania, Spain, Slovenia and the United Kingdom, as well as Norway, Liechtenstein and Iceland.

30

(31)  AT-FMA, BE-FSMA (with national measures introduced to restrict these products),CY-CySEC, CZ-CNB, DE-BaFin, DK-Finanstilsynet, EE-FSA, EL-HCMC, ES-CNMV, FI-FSA. FR-AMF, IE-CBI, IS-FME, IT-CONSOB, LI-FMA, LT- Lietuvos Bankas, MT-MFSA, NL-AFM, NO-Finanstilsynet, PT-CMVM, RO-ASF, SE-FI, SI-ATVP, UK-FCA.

31

(32)  IT-CONSOB, IE-CBI, FR-AFM and CZ-CNB.

32

(33)  In 2017, the Ελληνική Επιτροπή Κεφαλαιαγοράς (EL-HCMC), the Greek NCA, the Magyar Nemzeti Bank (HU-MNB), the Hungarian NCA, and the Národná Banka Slovenska (SK-NBS), the Slovakian NCA,, reported to ESMA that they have observed a growth in the number of applications for authorisation of CFD providers.

33

(34)  Data provided in 2015 by: BG-FSMA, CY-CySEC, CZ-CNB, FR-AMF, IE-CBI, IS-FME, LU-CSSF, NL-AFM, MT-MFSA, PT-CMVM, RO-ASF, UK-FCA. Data provided in 2017 by: CY-CySEC,CZ-CNB, ES-CNMV, FR-AMF, IE-CBI, LU-CSSF, NL-AFM, MT-MFSA, NO- Finanstilsynet, SK-NBS, UK-FCA.

34

(35)  Given the frequent cross-border dimension of the activity of product providers, this figure may include clients from non-EEA States. With particular regard to the UK, the number of CFD funded client accounts has risen from 657 000 in 2011 to 1 051 000 at end-2016. However, these figures do not exclude dormant client accounts or multiple accounts used by the same retail client. The figures provided by CY-CySEC have been compiled on the basis of accounts opened in CY-CySEC authorised providers offering these products.

35

(36)  As far as the UK is concerned, this figure does not include non-UK clients of UK authorised providers which in 2016 was estimated at approximately 400 000. For the other Member States which provided the data to ESMA, the figure may include clients from non-EEA States.

36

(37)  Complaints relating to CFDs have been received by the AT-FMA,, the BE-FSMA, the BG-FSC, the HR- HANFA, the CZ-CNB, the CY-CySEC, the DE-Bain, the DK-Finanstilsynet, the EE-Finantsinspektsioon, the EL-HCMC, the ES-CNMV), the FI-Finanssivalvonta, the FR-AMF, the IE-CBI), IT-CONSOB, the LT-Lietuvos Bankas, the MT-MFSA, the NL-AFM, the PL-KNF), the PT-CMVM), the RO-ASF, the SE-Finansinspektionen, the SI-ATVP, the UK-FCA and the NO-Finanstilsynet.

37

(38)  For example, the Czech National Bank, the Polish KNF and the Spanish CNMV.

38

(39)  Available at: https://www.fsma.be/en/news/fsma-regulation-establishes-framework-distribution-otc-derivatives-binary-options-cfds

39

(40)  Available at: http://www.amf-france.org/en_US/Actualites/Communiques-de-presse/AMF/annee-2016.html?docId=workspace%3A%2F%2FSpacesStore%2Fad42eecc-9720-49da-82a8-2ddcb72fbf1d

40

(41)  Across a study of 30 000 clients representing approximately 100 % of retail clients of CFD providers authorised by CNMV.

41

(42)  Published in Spanish: http://www.cnmv.es/Portal/verDoc.axd?t=%7bf1a92bb1-5f1b-420b-b58c-122d64a1ed9a%7d

42

(43)  Available at: http://www.amf-france.org/technique/multimedia%3FdocId%3Dworkspace%253A%252F%252FSpacesStore%252F9bf2caa8-1ce4-4832-85f4-4dffcace8644%26

43

(44)  Available at: https://www.centralbank.ie/docs/default-source/publications/Consultation-Papers/cp107/consultation-paper-107.pdf?sfvrsn=4. See page 1 and 2.

44

(45)  Available at: https://www.knf.gov.pl/o_nas/komunikaty?articleId=50315&p_id=18 (only available in Polish).

45

(46)  Those clients invested mainly in CFDs. These data also include investors investing in binary options who constituted less than 4 % of active clients in 2017.

46

(47)  Available at: https://www.fca.org.uk/publication/consultation/cp16-40.pdf. See page 23 and 35.

47

(48)  Available at: https://www.fca.org.uk/publication/correspondence/dear-ceo-letter-cfd-review-findings.pdf

48

(49)  Representing approximately 33 % to 50 % of all CFD retail clients active in Norway.

49

(50)  Published in Norwegian: https://www.finanstilsynet.no/nyhetsarkiv/nyheter/2017/finanstilsynet-advarer-mot-handel-i-cfd/

50

(51)  For example, based on Thomson Reuters Lipper data on retail share classes of the EU-domiciled UCITS fund universe, ESMA estimates that the average annual investor return, weighted by assets, net of charges and front and back loads, was around 3 % over the period 2008-2017, with more than 5 % return on average for equity fund investments. Further details on performance and costs relating to EU UCITS may be found in the ESMA Report on Trends, Risks and Vulnerabilities No 2 2017, pages 36-44, available at https://www.esma.europa.eu/sites/default/files/library/esma50-165-416_trends_risks_and_vulnerabilities_no.2_2017.pdf).

51

(52)  A study on the offer of CFDs and rolling spot forex to retail clients was conducted by the MT-MFSA.

52

(53)  Previously Article 19(5) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC (OJ L 145, 30.4.2004, p. 1). Annex IV to Directive 2014/65/EU provides a correlation table between the requirements of Directive 2004/39/EC and the requirements of Directive 2014/65/EU and Regulation (EU) No 600/2014.

53

(54)  This risk is possibly magnified by the overconfidence bias which has often been observed in recent behavioural studies. A recent study focussing on forex markets demonstrates that leverage is a significant indicator of overconfidence: Forman, John H. and Horton, Joanne, Is Leverage Use a Better Indication for Overconfidence? Evidence from the Forex Market (August 30, 2017). Available at SSRN: https://ssrn.com/abstract=2860103. According to a recent study (Li, Mingsheng and Li, Qian and Li, Yan, The Danger of Investor Overconfidence (November 14, 2016) available at SSRN: https://ssrn.com/abstract=2932961) on the effects of investor sentiment on market efficiency around market crashes, investor overconfidence impedes price discovery, increases idiosyncratic risks and dampens responses to the market before market crashes because of the information biases (Peng, Lin, Wei Xiong, 2006. Investor attention, overconfidence and category learning. Journal of Financial Economics 80, 563-602), as well as investor attribution bias (Gervais, S., and T. Odean, 2001. Learning to be Overconfident. The Review of Financial Studies, 14, 1– 27.) and high risk of arbitrage (Benhabit, Jess, Xuewen Liu, and, Penfei Wang, 2016. Sentiments, financial markets, and macroeconomic fluctuations. Journal of Financial Economics 120, 420-443. On the same topic, inter alia see also: Ricciardi, Victor, Chapter 26: The Psychology of Speculation in the Financial Markets (June 1, 2017). Financial Behavior: Players, Services, Products, and Markets. H. Kent Baker, Greg Filbeck, and Victor Ricciardi, editors, 481-498, New York, NY: Oxford University Press, 2017.; N. Barberis and R. H. Thaler (2003), A Survey of Behavioral Finance, in M. Harris, G.M. Constantinides and R. Stultz, ‘Handbook of the Economics of Finance’; D. Dorn and G. Huberman (2005), Talk and action: What individual investors say and what they do; C.H. Pan and M. Statman (2010) Beyond Risk Tolerance: Regret, Overconfidence, and Other Investor Propensities, Working Paper; A. Nosic and M. Weber (2010), How Risky do I invest: The Role of Risk Attitudes, Risk Perceptions and Overconfidence; N. Linciano (2010), How Cognitive Biases and Instability of Preferences in the Portfolio Choices of Retail Investors – Policy Implications of Behavioural Finance, A. Lefevre, and M. Chapman (2017), ‘Behavioural economics and financial consumer protection’, OECD Working Papers on Finance, Insurance and Private Pensions, No 42 OECD Publishing.

54

Investor attention, overconfidence and category learning

Learning to be Overconfident

Sentiments, financial markets, and macroeconomic fluctuations

The Psychology of Speculation in the Financial Markets

A Survey of Behavioral Finance

Talk and action: What individual investors say and what they do

Beyond Risk Tolerance: Regret, Overconfidence, and Other Investor Propensities

How Risky do I invest: The Role of Risk Attitudes, Risk Perceptions and Overconfidence

How Cognitive Biases and Instability of Preferences in the Portfolio Choices of Retail Investors – Policy Implications of Behavioural Finance

(55)  UK-FCA, Dear CEO Letter, ‘Client take-on review in firms offering contract for difference (CFD) products,’
  2 February 2016. See: https://www.fca.org.uk/publication/correspondence/dear-ceo-letter-cfd.pdf

55

(56)  UK-FCA, ‘CFD firms fail to meet our expectations on appropriateness assessments,’
  29 June 2017. See: https://www.fca.org.uk/publications/multi-firm-reviews/cfd-firms-fail-expectations-appropriateness-assessments

56

(57)  For example, DE - BaFin, DK- Finanstilsynet, ES-CNMV, IE-CBI, FR-AMF, LU-CSSF NL-AFM.

57

(58)  For example, IE-CBI.

58

(59)  For example, the UK-FCA.

59

(60)  Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA-35-36-794) as updated on 31 March 2017.

60

(61)  For example, BE-FSMA, ES-CNMV, FR-AMF and IT-CONSOB.

61

(62)  Section 3 of Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA-35-36-794) as updated on 31 March 2017 and one example from UK-FCA.

62

(63)  For example, ES-CNMV. UK-FCA, CY-CySEC and DE-BaFin.

63

(64)  In particular the UK-FCA. In Germany legislation was introduced to protect clients from losses (DE-BaFin General Administrative Act published on 8 May 2017. It bans the marketing, distribution or sale of CFDs to retail clients that do not exclude additional payment obligations).

64

(65)  ES-CNMV for example found that clients usually operate for a short time given the negative results obtained.

65

(66)  Section 6 of the Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA-35-36-794) as updated on 31 March 2017 states that it is unlikely that a firm offering a bonus that is designed to incentivise retail clients to trade in complex speculative products such as CFDs, CFDs and rolling spot forex could demonstrate that it is acting honestly, fairly and professionally and in the best interests of its retail clients.

66

(67)  For example, FR-AMF, UK-FCA and ES-CNMV.

67

(68)  For example, CZ-CNB, FR-AMF, HU-MNB, LU-CSSF and UK-FCA.

68

(69)  Section 2 of Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA35-36-794) as updated on 31 March 2017 discusses some of these conflicts of interest in more detail.

69

(70)  Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (OJ L 352, 9.12.2014, p. 1).

70

(71)  Previously Article 19(2) and (3) of Directive 2004/39/EC.

71

(72)  Previously Article 19(4) and (5) of Directive 2004/39/EC.

72

(73)  Previously Article 21 of Directive 2004/39/EC.

73

(74)  Annex IV to Directive 2014/65/EU provides a correlation table between the requirements of Directive 2004/39/EC and the requirements of Directive 2014/65/EU and Regulation (EU) No 600/2014.

74

(75)  Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents (OJ L 100, 12.4.2017, p. 1).

75

(76)  For example, the IE-CBI expressed concerns on the criteria used to assess knowledge and experience for the purposes of the assessment following their themed inspection (https://www.centralbank.ie/news/article/inspection-finds-75-percent-of-cfd-clients-lost-money). Furthermore, firm data received by the UK-FCA in Q1 2017 from CFD providers shows that, at some of the largest retail CFD providers in the UK (representing approximately 70 % of the relevant UK market), approximately 50 % of clients had failed the appropriateness test but continued to trade after receiving an enhanced risk warning. Furthermore, the UK-FCA has observed repeated failings by firms in relation to the adequacy of their appropriateness assessments and related policies and procedures (see above).

76

(77)  Questions and Answers (Q&As) relating to the provision of CFDs and other speculative products to retail investors under MiFID (ESMA35-36-794) as updated on 31 March 2017.

77

(78)  ESMA ‘Guidelines on MiFID II product governance requirements’ of 2 June 2017 (ESMA35-43-620).

78

(79)  For example London Capital Group Ltd, Dom Maklerski TMS Brokers S.A., GKFX Financial Services Limited, AxiCorp Financial Services Pty Ltd, Swissquote and also some confidential responses explicitly referred to a 100:1 leverage.

79

(80)  Regulation of the BE-FSMA governing the distribution of certain derivative financial instruments to the clients.

80

(81)  CY-CySEC Circular No C168, dated 30 November 2016.

81

(82)  CY-CySEC Circular No C168, dated 30 November 2016.

82

(83)  
  Article 72 de Loi no 2016-1691 du 9 décembre 2016 relative à la transparence, à la lutte contre la corruption et à la modernisation de la vie économique.

83

Article 72 de Loi no

(84)  Available at: http://prawo.sejm.gov.pl/isap.nsf/DocDetails.xsp?id=WDU20150000073

84

(85)  Available at: http://legislacja.gov.pl/docs//2/12300403/12445426/12445427/dokument298571.pdf

85

(86)  Available at: https://legislacja.rcl.gov.pl/docs//2/12300403/12445438/12445439/dokument321489.pdf

86

(87)  MT-MFSA: Requirements for Category 2 or Category 3 Investment Services Firms distributing or intending to distribute CFDs and/or rolling spot forex contracts under the MiFID regime, 3 April 2017; available at: https://www.mfsa.com.mt/pages/readfile.aspx?f=/files/Announcements/Consultation/2017/20170403_Revised%20online%20forex%20policy_clean.pdf

87

(88)  The DE-BaFin General Administrative Act was published on 8 May 2017 and CFD providers had to implement the relevant measures by 10 August 2017, the Act is available at: https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Aufsichtsrecht/Verfuegung/vf_170508_allgvfg_cfd_wa.html;jsessionid=BEF7FF8ADA6FF31D076D4DE32FBF8025.2_cid290?nn=7846960

88

(89)  The intended measures were announced by ES-CNMV's communication Measures on the Marketing of CFDs and Other Speculative Products to Retail Investors, dated 21 March 2017.

89

(90)  Consultation Paper 107 on the Protection of Retail Investors in relation to the Distribution of CFDs.

90

(91)  HCMC Circular No 56/10.5.2017.

91

(92)  Available at: https://www.finanstilsynet.no/contentassets/455795d40fe4445f88a3b71b35079c94/horingsnotat---produktintervensjon.pdf

92

(93)  The CONSOB Communication was published on 13 February 2017 in the CONSOB newsletter, available at: (Italian version) http://www.consob.it/web/area-pubblica/avvisi-ai-risparmiatori/documenti/tutela/cns/2017/ct20170207.html; (English version) http://www.consob.it/web/consob-and-its-activities/newsletter/documenti/english/en_newsletter/2017/year_23_n-05_13_february_2017.html#news2

93

(94)  Available at: https://www.fca.org.uk/news/news-stories/consumer-warning-about-risks-investing-cryptocurrency-cfds

94

(95)  33 % of all complaints received by the AMF in 2017 relate to CFDs and binary options.

95

(96)  In the UK and Cyprus, where most CFD providers are established, the CY-CySEC and the UK-FCA have reported an increase in the number of providers specialising in the sale of CFDs to retail clients on a cross-border basis from 103 to 138 providers and from 117 to 143 providers respectively between 2016 and 2017.

96

(97)  Articles 34 and 35 of Directive 2014/65/EU.

97

(98)  The higher the leverage, the more likely client losses are because spreads and fees make up a larger proportion of the initial margin. Higher leverage also makes it more likely that a client will lose a given percentage of the margin, increasing the risk of material detriment to the investor.

98

(99)  
  Should Retail Investors' Leverage Be Limited? Rawley Z. Heimer and Alp Simsek. NBER Working Paper No 24176, issued in December 2017 and available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2150980

99

Should Retail Investors' Leverage Be Limited?

(100)  See, Heimer, Rawley, and Simsek, Alp, Should Retail Investors' Leverage Be Limited? NBER Working Paper No 24176, issued in December 2017 and available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2150980

100

Should Retail Investors' Leverage Be Limited?

(101)  
  Should Retail Investors' Leverage Be Limited? Rawley Z. Heimer and Alp Simsek. NBER Working Paper No 24176, issued in December 2017 and available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2150980

101

Should Retail Investors' Leverage Be Limited?

(102)  As such, initial margin protection should also reduce the extent to which these products are distributed to particularly vulnerable investors, such as low income groups of clients.

102

(103)  Leverage limits are for instance in force in the US, Japan, Hong Kong and Singapore. Leverage limits and minimum margin requirements are also included in IOSCO's Consultation Paper dated February 2018 available at: http://www.iosco.org/library/pubdocs/pdf/IOSCOPD592.pdf

103

(104)  A similar analytical framework was used by the FCA in its consultation published in December 2016. Available at: https://www.fca.org.uk/publication/consultation/cp16-40.pdf

104

(105)  In most cases, approximately 10 years of data were used. The exception was for some equities, for which price data was only available for the period starting at the relevant initial public offering and cryptocurrencies.

105

(106)  The cost assumptions used were based on cost data from CFD providers. The cost assumptions were varied as part of robustness checks, which did not lead to material changes in the results. This does not indicate that spreads, fees and charges are not a source of material detriment in general, especially at high leverage. Indeed, these costs are a key reason that a majority of retail clients lose money and a source of substantial losses for clients who trade many positions frequently. Rather, the robustness checks simply indicate that typical spreads, fees and charges do not make close-out substantially more likely under the assumptions used. In the modelling exercise a single CFD position was simulated in all cases.

106

(107)  See recital 26.

107

(108)  For example, DE-BaFin stated that some investors lost more money than they invested due to the decision of the Swiss National Bank to no longer peg the Swiss Franc to the Euro. Available at: https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Aufsichtsrecht/Verfuegung/vf_170508_allgvfg_cfd_wa_en.html

108

(109)  
  ‘Swiss franc event’ refers to the sudden appreciation in the Swiss franc against the euro, of the order of 15 %, on the morning of Thursday, 15 January 2015.

109

(110)  The detriment caused in such a situation was evident in relation to the Swiss franc crash, where some investors unwittingly became liable for tens of thousands of euros, sums they were unable to pay.

110

(111)  In particular, prior to being presented with the standardised risk warning, 66 % of participants in the study accurately stated that CFDs are riskier than savings accounts, bonds, and tracker funds, 50 % accurately stated that could lose more money than you invested in CFDs, and 54 % accurately said that most clients lose money using these products. After being presented with the standardised risk warning on the firm's webpage, the study found that 90 % of participants accurately described the risk profile of CFDs (that is that they are risky than the above described assets). For clients who inaccurately said that all investors make money, the probability of a client responding accurately (by stating that most investors lose money) was 91,5 %. This indicates that standardised risk warnings, including the disclosure of client account performance, can significant improve a client's understanding of the product. From Mullett, T.L. & Stewart, N. (2017) The effect of risk warning content for contract for difference products. Working Paper. This work was funded by a public research grant but was developed in consultation with the UK-FCA.

111

Working Paper

(112)  Joint Position on ‘Manufacturers' Product Oversight and Governance Processes’ (JC-2013-77).

112

(113)  Opinion on ‘MiFID practices for firms selling complex products’ (ESMA/2014/146. This opinion specifically included references to CFDs and binary options.

113

(114)  Opinion on ‘Structured Retail Products — Good practices for product governance arrangements’ (ESMA/2014/332).

114

(115)  
  ‘The Responsibilities of Providers and Distributors for the Fair Treatment of Customers’ https://www.handbook.fca.org.uk/handbook/document/RPPD_FCA_20130401.pdf. The guidance is linked to the UK's Principles for Businesses (PRIN) https://www.handbook.fca.org.uk/handbook/document/rppd/RPPD_Full_20180103.pdf

115

(116)  ESMA has emphasised the risk of regulatory arbitrage in its opinion on Impact of the exclusion of fund management companies from the scope of the MiFIR Intervention Powers of 12 January 2017(ESMA50-1215332076-23), in which it has expressed concerns for the risk of regulatory arbitrage and the potential reduction in effectiveness of future intervention measures arising from the exclusion of certain entities from the scope of the relevant measures (UCITS management companies and Alternative investment fund managers). The Commission has proposed amendments to enhance legal certainty in this respect by amending Regulation (EU) No 600/2014 (COM(2017) 536/948972).

116

(117)  Council Regulation (EC) No 1234/2007 of 22 October 2007 establishing a common organisation of agricultural markets and on specific provisions for certain agricultural products (Single CMO Regulation) (OJ L 299, 16.11.2007, p. 1).

117

---

ANNEX I

INITIAL MARGIN PERCENTAGES BY TYPE OF UNDERLYING

| (a) | 3,33 % of the notional value of the CFD when the underlying currency pair is composed of any two of the following currencies: US dollar, Euro, Japanese yen, Pound sterling, Canadian dollar or Swiss franc; |
| --- | --- |

(a)

3,33 % of the notional value of the CFD when the underlying currency pair is composed of any two of the following currencies: US dollar, Euro, Japanese yen, Pound sterling, Canadian dollar or Swiss franc;

| (b) | 5 % of the notional value of the CFD when the underlying index, currency pair or commodity is:






  (i) | any of the following equity indices: Financial Times Stock Exchange 100 (FTSE 100); Cotation Assistée en Continu 40 (CAC 40); Deutsche Bourse AG German Stock Index 30 (DAX30); Dow Jones Industrial Average (DJIA); Standard & Poors 500 (S&P 500); NASDAQ Composite Index (NASDAQ), NASDAQ 100 Index (NASDAQ 100); Nikkei Index (Nikkei 225); Standard & Poors / Australian Securities Exchange 200 (ASX 200); EURO STOXX 50 Index (EURO STOXX 50); |
| --- | --- | --- |

(b)

5 % of the notional value of the CFD when the underlying index, currency pair or commodity is:

(i)

any of the following equity indices: Financial Times Stock Exchange 100 (FTSE 100); Cotation Assistée en Continu 40 (CAC 40); Deutsche Bourse AG German Stock Index 30 (DAX30); Dow Jones Industrial Average (DJIA); Standard & Poors 500 (S&P 500); NASDAQ Composite Index (NASDAQ), NASDAQ 100 Index (NASDAQ 100); Nikkei Index (Nikkei 225); Standard & Poors / Australian Securities Exchange 200 (ASX 200); EURO STOXX 50 Index (EURO STOXX 50);

| (ii) | a currency pair composed of at least one currency that is not listed in point (a) above; or |
| --- | --- |

(ii)

a currency pair composed of at least one currency that is not listed in point (a) above; or

| (iii) | gold; |
| --- | --- |

(iii)

gold;

| (c) | 10 % of the notional value of the CFD when the underlying commodity or equity index is a commodity or any equity index other than those listed in point (b) above; |
| --- | --- |

(c)

10 % of the notional value of the CFD when the underlying commodity or equity index is a commodity or any equity index other than those listed in point (b) above;

| (d) | 50 % of the notional value of the CFD when the underlying is a cryptocurrency; or |
| --- | --- |

(d)

50 % of the notional value of the CFD when the underlying is a cryptocurrency; or

| (e) | 20 % of the notional value of the CFD when the underlying is:






  (i) | a share; or |
| --- | --- | --- |

(e)

20 % of the notional value of the CFD when the underlying is:

(i)

a share; or

| (ii) | not otherwise listed in this Annex. |
| --- | --- |

(ii)

not otherwise listed in this Annex.

---

ANNEX II

RISK WARNINGS

SECTION A

Risk warning conditions

| 1. | The risk warning shall be in a layout ensuring its prominence, in a font size at least equal to the predominant font size and in the same language as that used in the communication or published information. |
| --- | --- |

1.

| 2. | If the communication or published information is in a durable medium or a webpage, the risk warning shall be in the format specified in Section B. |
| --- | --- |

2.

| 3. | If the communication or information is in a medium other than a durable medium or a webpage, the risk warning shall be in the format specified in Section C. |
| --- | --- |

3.

| 4. | The risk warning shall include an up-to-date provider-specific loss percentage based on a calculation of the percentage of CFD trading accounts provided to retail clients by the CFD provider that lost money. The calculation shall be performed every 3 months and cover the 12-month period preceding the date on which it is performed (‘12-month calculation period’). For the purposes of the calculation:






  (a) | an individual retail client CFD trading account shall be considered to have lost money if the sum of all realised and unrealised net profits on CFDs connected to the CFD trading account during the 12-month calculation period is negative; |
| --- | --- | --- |

4.

(a)

an individual retail client CFD trading account shall be considered to have lost money if the sum of all realised and unrealised net profits on CFDs connected to the CFD trading account during the 12-month calculation period is negative;

| (b) | any costs relating to the CFDs connected to the CFD trading account shall be included in the calculation, including all charges, fees and commissions; |
| --- | --- |

(b)

any costs relating to the CFDs connected to the CFD trading account shall be included in the calculation, including all charges, fees and commissions;

| (c) | the following items shall be excluded from the calculation:






  (i) | any CFD trading account that did not have an open CFD connected to it within the calculation period; |
| --- | --- | --- |

(c)

the following items shall be excluded from the calculation:

(i)

any CFD trading account that did not have an open CFD connected to it within the calculation period;

| (ii) | any profits or losses from products other than CFDs connected to the CFD trading account; |
| --- | --- |

(ii)

any profits or losses from products other than CFDs connected to the CFD trading account;

| (iii) | any deposits or withdrawals of funds from the CFD trading account. |
| --- | --- |

(iii)

any deposits or withdrawals of funds from the CFD trading account.

| 5. | By way of derogation from paragraphs 2 to 4, if in the last 12-month calculation period a CFD provider has not provided an open CFD connected to a retail client CFD trading account, that CFD provider shall use the standard risk warning specified in Sections D and E, as appropriate. |
| --- | --- |

5.

SECTION B

Durable medium and webpage provider-specific risk warning

| CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

  [insert percentage per provider] % of retail investor accounts lose money when trading CFDs with this provider.

  You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. |
| --- |

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

[insert percentage per provider] % of retail investor accounts lose money when trading CFDs with this provider.

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

SECTION C

Abbreviated provider-specific risk warning

| [insert percentage per provider] % of retail investor accounts lose money when trading CFDs with this provider.

  You should consider whether you can afford to take the high risk of losing your money. |
| --- |

[insert percentage per provider] % of retail investor accounts lose money when trading CFDs with this provider.

You should consider whether you can afford to take the high risk of losing your money.

SECTION D

Durable medium and webpage standard risk warning

| CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

  Between 74-89 % of retail investor accounts lose money when trading CFDs.

  You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. |
| --- |

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Between 74-89 % of retail investor accounts lose money when trading CFDs.

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

SECTION E

Abbreviated standard risk warning

| Between 74-89 % of retail investor accounts lose money when trading CFDs.

  You should consider whether you can afford to take the high risk of losing your money. |
| --- |

Between 74-89 % of retail investor accounts lose money when trading CFDs.

You should consider whether you can afford to take the high risk of losing your money.

---

GUIDELINES

| 1.6.2018 | EN | Official Journal of the European Union | L 136/81 |
| --- | --- | --- | --- |

1.6.2018

EN

Official Journal of the European Union

L 136/81

---

GUIDELINE (EU) 2018/797 OF THE EUROPEAN CENTRAL BANK

of 3 May 2018

on the Eurosystem's provision of reserve management services in euro to central banks and countries located outside the euro area and to international organisations (ECB/2018/14)

(recast)

THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to the Statute of the European System of Central Banks and of the European Central Bank, and in particular Articles 12.1, 14.3 and Article 23 thereof,

Whereas:

| (1) | Guideline ECB/2006/4 (1) has been amended several times (2). Since further amendments are to be made, Guideline ECB/2006/4 should be recast in the interests of clarity. |
| --- | --- |

(1)

Guideline ECB/2006/4 (1) has been amended several times (2). Since further amendments are to be made, Guideline ECB/2006/4 should be recast in the interests of clarity.

| (2) | Pursuant to Article 23 in conjunction with Article 42.4 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’), the European Central Bank (ECB) and the national central banks of the Member States whose currency is the euro may establish relations with central banks and financial institutions in other countries and, where appropriate, with international organisations, and conduct all types of banking transactions in their relations with third countries and international organisations. |
| --- | --- |

(2)

Pursuant to Article 23 in conjunction with Article 42.4 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’), the European Central Bank (ECB) and the national central banks of the Member States whose currency is the euro may establish relations with central banks and financial institutions in other countries and, where appropriate, with international organisations, and conduct all types of banking transactions in their relations with third countries and international organisations.

| (3) | When providing Eurosystem reserve management services to customers, irrespective of the Eurosystem central bank through which such services are provided, the Eurosystem should act as a single system. To this end, this Guideline aims to ensure, inter alia, that Eurosystem reserve management services are provided on a standardised basis under harmonised terms and conditions, that the ECB receives adequate information regarding these services, and that the minimum common features required in contractual arrangements with customers are identified. |
| --- | --- |

(3)

When providing Eurosystem reserve management services to customers, irrespective of the Eurosystem central bank through which such services are provided, the Eurosystem should act as a single system. To this end, this Guideline aims to ensure, inter alia, that Eurosystem reserve management services are provided on a standardised basis under harmonised terms and conditions, that the ECB receives adequate information regarding these services, and that the minimum common features required in contractual arrangements with customers are identified.

| (4) | All information, data and documents drafted by and/or exchanged between Eurosystem central banks in the context of Eurosystem reserve management services are of a confidential nature and are subject to Article 37 of the Statute of the ESCB, |
| --- | --- |

(4)

All information, data and documents drafted by and/or exchanged between Eurosystem central banks in the context of Eurosystem reserve management services are of a confidential nature and are subject to Article 37 of the Statute of the ESCB,

HAS ADOPTED THIS GUIDELINE:

Article 1

Definitions

For the purposes of this Guideline:

| (1) | ‘all types of banking transactions’ includes the provision of Eurosystem reserve management services to customers; |
| --- | --- |

(1)

‘all types of banking transactions’ includes the provision of Eurosystem reserve management services to customers;

| (2) | ‘authorised ECB personnel’ means such persons at the ECB as shall be identified by the Executive Board, from time to time, as the authorised senders and recipients of the information to be provided within the framework of Eurosystem reserve management services; |
| --- | --- |

(2)

‘authorised ECB personnel’ means such persons at the ECB as shall be identified by the Executive Board, from time to time, as the authorised senders and recipients of the information to be provided within the framework of Eurosystem reserve management services;

| (3) | ‘central bank’ includes monetary authorities; |
| --- | --- |

(3)

‘central bank’ includes monetary authorities;

| (4) | ‘customer’ means any central bank or any country (including any public authority or government agency) located outside the euro area, or any international organisation to which Eurosystem reserve management services are provided by a Eurosystem central bank; |
| --- | --- |

(4)

‘customer’ means any central bank or any country (including any public authority or government agency) located outside the euro area, or any international organisation to which Eurosystem reserve management services are provided by a Eurosystem central bank;

| (5) | ‘Eurosystem central bank’ means the ECB and the national central banks of the Member States whose currency is the euro; |
| --- | --- |

(5)

‘Eurosystem central bank’ means the ECB and the national central banks of the Member States whose currency is the euro;

| (6) | ‘Eurosystem reserve management services’ means the reserve management services listed in Article 2 that may be provided by Eurosystem central banks to customers and that allow customers to comprehensively manage their reserves through a single Eurosystem central bank; |
| --- | --- |

(6)

‘Eurosystem reserve management services’ means the reserve management services listed in Article 2 that may be provided by Eurosystem central banks to customers and that allow customers to comprehensively manage their reserves through a single Eurosystem central bank;

| (7) | ‘Eurosystem service provider’ (ESP) means a Eurosystem central bank which undertakes to provide the complete set of Eurosystem reserve management services; |
| --- | --- |

(7)

‘Eurosystem service provider’ (ESP) means a Eurosystem central bank which undertakes to provide the complete set of Eurosystem reserve management services;

| (8) | ‘Individual service provider’ (ISP) means a Eurosystem central bank which does not undertake to provide the complete set of Eurosystem reserve management services; |
| --- | --- |

(8)

‘Individual service provider’ (ISP) means a Eurosystem central bank which does not undertake to provide the complete set of Eurosystem reserve management services;

| (9) | ‘international organisation’ means any organisation, other than Union institutions and bodies, established by or under the authority of an international treaty; |
| --- | --- |

(9)

‘international organisation’ means any organisation, other than Union institutions and bodies, established by or under the authority of an international treaty;

| (10) | ‘potential customer’ means any central bank or any country (including any public authority or government agency) located outside the euro area, or any international organisation that has entered into negotiations with an ESP or an ISP with the intention of establishing a business relationship and that has received a contract for negotiation and possible signature; |
| --- | --- |

(10)

‘potential customer’ means any central bank or any country (including any public authority or government agency) located outside the euro area, or any international organisation that has entered into negotiations with an ESP or an ISP with the intention of establishing a business relationship and that has received a contract for negotiation and possible signature;

| (11) | ‘reserves’ means the customer's eligible euro-denominated assets, i.e. cash and all securities that are included in the Eurosystem list of eligible marketable assets, as published and updated daily on the ECB's website, with the exception of:






  (a) | securities falling under ‘haircut category V’ (asset-backed securities); |
| --- | --- | --- |

(11)

‘reserves’ means the customer's eligible euro-denominated assets, i.e. cash and all securities that are included in the Eurosystem list of eligible marketable assets, as published and updated daily on the ECB's website, with the exception of:

(a)

securities falling under ‘haircut category V’ (asset-backed securities);

| (b) | assets exclusively held for the purpose of meeting the pension and related obligations of the customer vis-à-vis its former or existing staff; |
| --- | --- |

(b)

assets exclusively held for the purpose of meeting the pension and related obligations of the customer vis-à-vis its former or existing staff;

| (c) | euro-denominated assets held on dedicated accounts opened with a Eurosystem central bank by a customer for public debt rescheduling purposes within the framework of international agreements; |
| --- | --- |

(c)

euro-denominated assets held on dedicated accounts opened with a Eurosystem central bank by a customer for public debt rescheduling purposes within the framework of international agreements;

| (d) | euro-denominated assets of the International Monetary Fund (IMF) held in the No 1 and No 2 Accounts and in the Securities Account of the IMF with Eurosystem central banks; and |
| --- | --- |

(d)

euro-denominated assets of the International Monetary Fund (IMF) held in the No 1 and No 2 Accounts and in the Securities Account of the IMF with Eurosystem central banks; and

| (e) | such other categories of euro-denominated assets as decided from time to time by the Governing Council. |
| --- | --- |

(e)

such other categories of euro-denominated assets as decided from time to time by the Governing Council.

Article 2

List of Eurosystem reserve management services

Eurosystem reserve management services shall consist of the following:

| (1) | custody (safe keeping) accounts for the reserves; |
| --- | --- |

(1)

custody (safe keeping) accounts for the reserves;

| (2) | the following custodian (safe keeping) services:






  (a) | end-of-month custody statements, with the possibility of also providing statements at other dates at the customer's request; |
| --- | --- | --- |

(2)

the following custodian (safe keeping) services:

(a)

end-of-month custody statements, with the possibility of also providing statements at other dates at the customer's request;

| (b) | transmission of statements via SWIFT to all customers capable of receiving statements via SWIFT, and via other means as appropriate for non-SWIFT customers; |
| --- | --- |

(b)

transmission of statements via SWIFT to all customers capable of receiving statements via SWIFT, and via other means as appropriate for non-SWIFT customers;

| (c) | notification of corporate actions (e.g. coupon payments and redemptions) in relation to customers' securities holdings; |
| --- | --- |

(c)

notification of corporate actions (e.g. coupon payments and redemptions) in relation to customers' securities holdings;

| (d) | processing corporate actions on behalf of customers; |
| --- | --- |

(d)

processing corporate actions on behalf of customers;

| (e) | facilitating arrangements between customers and third party agents, under certain restrictions, in connection with the operation of automatic securities lending programmes; |
| --- | --- |

(e)

facilitating arrangements between customers and third party agents, under certain restrictions, in connection with the operation of automatic securities lending programmes;

| (3) | the following settlement services:






  (a) | free of payment/delivery versus payment settlement services for all euro-denominated securities for which custody accounts are provided; |
| --- | --- | --- |

(3)

the following settlement services:

(a)

free of payment/delivery versus payment settlement services for all euro-denominated securities for which custody accounts are provided;

| (b) | confirmation of settlement of all operations via SWIFT (or other means as appropriate for non-SWIFT customers); |
| --- | --- |

(b)

confirmation of settlement of all operations via SWIFT (or other means as appropriate for non-SWIFT customers);

| (4) | the following cash/investment services:






  (a) | purchase/sale of foreign exchange for customers' accounts on a principal basis, covering the spot purchase/sale of euro against non-euro area G10 currencies as a minimum; |
| --- | --- | --- |

(4)

the following cash/investment services:

(a)

purchase/sale of foreign exchange for customers' accounts on a principal basis, covering the spot purchase/sale of euro against non-euro area G10 currencies as a minimum;

| (b) | fixed-term deposit services:






  (i) | on an agency basis; or |
| --- | --- | --- |

(b)

fixed-term deposit services:

(i)

on an agency basis; or

| (ii) | on a principal basis; |
| --- | --- |

(ii)

on a principal basis;

| (c) | overnight credit balances:






  (i) | Tier 1 — automatic investment of a limited fixed amount per customer on a principal basis; |
| --- | --- | --- |

(c)

overnight credit balances:

(i)

Tier 1 — automatic investment of a limited fixed amount per customer on a principal basis;

| (ii) | Tier 2 — possibility of investing funds with market participants on an agency basis; |
| --- | --- |

(ii)

Tier 2 — possibility of investing funds with market participants on an agency basis;

| (d) | execution of investments for customers according to their standing instructions and in accordance with the set of Eurosystem reserve management services; |
| --- | --- |

(d)

execution of investments for customers according to their standing instructions and in accordance with the set of Eurosystem reserve management services;

| (e) | execution of customers' orders for securities purchases/sales in the secondary market; |
| --- | --- |

(e)

execution of customers' orders for securities purchases/sales in the secondary market;

| (5) | the following cash account service:






  (a) | execution of incoming and outgoing cashless payment transactions in connection with Eurosystem reserve management services. |
| --- | --- | --- |

(5)

the following cash account service:

(a)

execution of incoming and outgoing cashless payment transactions in connection with Eurosystem reserve management services.

Article 3

Provision of services by ESPs and ISPs

1.   Within the framework of the Eurosystem reserve management services, Eurosystem central banks shall be considered as being either an ESP or an ISP.

2.   In addition to the services listed in Article 2, ESPs may also offer other reserve management services to customers. ESPs shall determine such services on an individual basis and such services shall not be subject to this Guideline.

3.   ISPs shall be subject to this Guideline and the requirements of Eurosystem reserve management services as regards one or more Eurosystem reserve management services, or part of such service, which such ISPs provide and which form part of the complete set of Eurosystem reserve management services. Furthermore, ISPs may also offer other reserve management services to customers and shall determine such services on an individual basis. Such services shall not be subject to this Guideline.

4.   With regard to the reserve management services provided to customers, such customers may have arrangements with several Eurosystem central banks.

Article 4

Information regarding Eurosystem reserve management services

1.   Eurosystem central banks shall provide the authorised ECB personnel with any relevant information on providing Eurosystem reserve management services to new and existing customers and inform the authorised ECB personnel when a potential customer approaches them.

2.   Before Eurosystem central banks disclose the identity of an existing, new or potential customer to the authorised ECB personnel, they shall endeavour to obtain the customer's consent to the disclosure.

3.   If consent is not obtained, the Eurosystem central bank concerned shall provide the authorised ECB personnel with the required information without revealing the identity of the customer.

Article 5

Prohibition and suspension of Eurosystem reserve management services

1.   The ECB shall maintain for consultation by the Eurosystem central banks a list of existing, new or potential customers whose reserves are affected by a freezing order or similar measure imposed either by one of the European Union Member States on the basis of a United Nations Security Council resolution or by the Union.

2.   If, on the basis of a measure or decision other than those referred to in paragraph 1, adopted for national policy or national interest reasons by a Eurosystem central bank or by the Member State in which the Eurosystem central bank is located, the Eurosystem central bank suspends the provision of Eurosystem reserve management services to an existing customer or refuses to provide such services to a new or potential customer, this Eurosystem central bank shall promptly notify the authorised ECB personnel thereof. The authorised ECB personnel shall promptly inform the other Eurosystem central banks thereof. Any such measure or decision shall not prevent the other Eurosystem central banks from providing Eurosystem reserve management services to such customers.

3.   Article 4(2) and (3) shall apply to any disclosure of the identity of an existing, new or potential customer made pursuant to paragraph 2. In the absence of a customer's consent, the disclosure of a customer's identity to other Eurosystem central banks shall only take place where such disclosure would be in line with the applicable law.

Article 6

Responsibility for Eurosystem reserve management services

1.   Each Eurosystem central bank shall be responsible for the execution of any contractual arrangements with its customers that it considers appropriate for the provision of Eurosystem reserve management services.

2.   Subject to any specific provisions applicable to, or agreed upon by a Eurosystem central bank, each Eurosystem central bank providing Eurosystem reserve management services or any part thereof to its customers, shall be liable for any such services that it provides.

Article 7

Minimum common features in contractual arrangements with customers

Eurosystem central banks shall ensure that their contractual arrangements with customers are consistent with this Guideline and with the following minimum common features. The contractual arrangements shall:

| (a) | state that the counterparty of the customer is the Eurosystem central bank with whom that customer has concluded an arrangement for the provision of Eurosystem reserve management services or any part thereof, and that such arrangement does not in itself create customer rights or entitlements vis-à-vis any other Eurosystem central banks; |
| --- | --- |

(a)

state that the counterparty of the customer is the Eurosystem central bank with whom that customer has concluded an arrangement for the provision of Eurosystem reserve management services or any part thereof, and that such arrangement does not in itself create customer rights or entitlements vis-à-vis any other Eurosystem central banks;

| (b) | refer to the links that may be used for the settlement of securities held by customers' counterparties and the relevant risks of using links not eligible for monetary policy operations; |
| --- | --- |

(b)

refer to the links that may be used for the settlement of securities held by customers' counterparties and the relevant risks of using links not eligible for monetary policy operations;

| (c) | refer to the fact that certain transactions within the framework of Eurosystem reserve management services shall be carried out on a best effort basis; |
| --- | --- |

(c)

refer to the fact that certain transactions within the framework of Eurosystem reserve management services shall be carried out on a best effort basis;

| (d) | refer to the fact that the Eurosystem central bank may make suggestions to customers as to the timing and execution of a transaction to avoid conflicts with the Eurosystem's monetary and exchange rate policy, and that such Eurosystem central bank shall not be liable for any consequences that such suggestions may have for the customer; |
| --- | --- |

(d)

refer to the fact that the Eurosystem central bank may make suggestions to customers as to the timing and execution of a transaction to avoid conflicts with the Eurosystem's monetary and exchange rate policy, and that such Eurosystem central bank shall not be liable for any consequences that such suggestions may have for the customer;

| (e) | refer to the fact that the fees that Eurosystem central banks charge to their customers for the provision of Eurosystem reserve management services are subject to reviews by the Eurosystem and that the customers shall, in accordance with applicable law, be bound by the fee revisions that might result from such reviews; |
| --- | --- |

(e)

refer to the fact that the fees that Eurosystem central banks charge to their customers for the provision of Eurosystem reserve management services are subject to reviews by the Eurosystem and that the customers shall, in accordance with applicable law, be bound by the fee revisions that might result from such reviews;

| (f) | state that the customer shall confirm to the Eurosystem central bank that it complies with all Union and national laws for the prevention of money laundering and terrorist financing, in so far as and to the extent applicable to it, including instructions given by competent authorities, and that it is not involved with any form of money laundering or terrorist financing. |
| --- | --- |

(f)

state that the customer shall confirm to the Eurosystem central bank that it complies with all Union and national laws for the prevention of money laundering and terrorist financing, in so far as and to the extent applicable to it, including instructions given by competent authorities, and that it is not involved with any form of money laundering or terrorist financing.

Article 8

Role of the ECB

The ECB shall coordinate the general provision of Eurosystem reserve management services and the related information framework. Any Eurosystem central bank that becomes an ESP or that terminates its status as an ESP shall inform the ECB thereof.

Article 9

Repeal

1.   Guideline ECB/2006/4 as amended by the Guidelines listed in Annex I is repealed with effect from 1 October 2018.

2.   References to the repealed Guideline shall be construed as references to this Guideline and shall be read in accordance with the correlation table in Annex II.

Article 10

Taking effect and implementation

1.   This Guideline shall take effect on the day of its notification to the national central banks of the Member States whose currency is the euro.

2.   The Eurosystem central banks shall comply with this Guideline from 1 October 2018.

Article 11

Addressees

This Guideline is addressed to all Eurosystem central banks.

Done at Frankfurt am Main, 3 May 2018.

For the Governing Council of the ECB

The President of the ECB

Mario DRAGHI

---

(1)  Guideline ECB/2006/4 of 7 April 2006 on the Eurosystem's provision of reserve management services in euro to central banks and countries located outside the euro area and to international organisations (OJ L 107, 20.4.2006, p. 54).

1

(2)  See Annex I.

2

---

ANNEX I

REPEALED GUIDELINE WITH LIST OF THE SUCCESSIVE AMENDMENTS THERETO

Guideline ECB/2006/4 (OJ L 107, 20.4.2006, p. 54).

Guideline ECB/2009/11 (OJ L 139, 5.6.2009, p. 34).

Guideline ECB/2013/14 (OJ L 138, 24.5.2013, p. 19).

---

ANNEX II

CORRELATION TABLE

| Guideline ECB/2006/4 | This Guideline |
| --- | --- |
| Article 1 | Article 1 |
| Article 2 | Article 2 |
| Article 3 | Article 3 |
| Article 4 | Article 4 |
| Article 5 | Article 5 |
| Article 6 | Article 6 |
| Article 7 | Article 7 |
| Article 8 | Article 8 |
| Article 9 | Articles 9-11 |

Guideline ECB/2006/4

This Guideline

Article 1

Article 1

Article 2

Article 2

Article 3

Article 3

Article 4

Article 4

Article 5

Article 5

Article 6

Article 6

Article 7

Article 7

Article 8

Article 8

Article 9

Articles 9-11

---