Last Updated on July 26, 2023 by Stephan Lindburg
According to an article dated February 2nd 2023 in the Official Monetary and Financial Institutions Forum “2023 looks set to be a defining year for cryptocurrencies, crypto assets” and central bank policies. If you try to get a feel for the regulator’s sentiment in regards to crypto or digital assets you can clearly see a lot of distrust. This is due to a variety of reasons, some of which are justified but in some cases very smart people are intentionally using the negative reputation cryptocurrencies such as Bitcoin or Ethereum have gained in order to promote an alternative agenda.
Judging from history, the fact that the SEC has accepted BlackRock’s Bitcoin ETF application does not necessarily mean that a permit to launch and manage an ETF in the USA will be granted. In fact, trends suggest the opposite and this is mainly due to lack of clarity across terminology as well as the de-facto implementation of regulatory safeguards, along with greater risk management capabilities and and streamlined procedures.
What Are CFDs
A CFD or contract for difference is a type of leveraged derivative that allows investors to speculate when trading the financial markets. CFDs are considered especially high risk instruments do to their sensitivity to short-term market movements. CFDs are designed for traders registered on broker platforms and NOT on exchanges. This ads another layer of regulatory concerns or factors which must be taken into consideration by potential investors.
In an official document dated July 10, 2023 ESMA, the European Securities and Markets Authority has published regulatory guidelines and requirements in regards to CFDs. The basis of this document is reliant on a decision made by The Spanish Comisión Nacional del Mercado de Valores (CNMV).
The CNMV has recently tightened regulations in regards to the sale of CFDs. It’s now practically impossible for a licensed operator to market or sell “leveraged products” in Spain. Special attention has been given to “advertising communications on CFDs aimed at retail clients, including a prohibition of related sponsorship of events or organisations and brand advertising, such as the use of public figures by the firms marketing CFDs”.
In other words, the Spanish government has wised up and finally made it illegal to use fake celebrity-endorsed ads in their legal jurisdiction. We see things differently, that’s because the criminals who engage in these types of deceptive advertising tactics could care less about operating illegally. These marketing firms refer clients to unlicensed CFD brokers, and these brokers also don’t really care about regulation. If they did, they would invest in obtaining a legitimate license and disassociate themselves with all forms of get-rich-quick schemes.
The ESMA reports concludes that while it agrees with certain aspects of the CMNV policies, “insufficient evidence” has been provided in order to issue a blanket ban on CFD’s in the entire EU block.
FCA Blanket Ban
In June 10th 2020 the Financial Conduct Authority in the United Kingdom (FCA) placed a blanket ban on CFDs. In their statement, Sheldon Mills, interim Executive Director of Strategy & Competition at the FCA clearly states that the ban reflects the “potential harm” which may be caused to retail traders. The statement continues to discuss issues such as volatility and valuation of crypto assets.
The AFM In Netherlands
The Dutch Authority for the Financial Markets (AFM) has placed specific regulatory emphasis on what it refers to as “finfluencers” or content creators that influence or attempt to persuade potential customers to invest. They specifically mention that people who are not licensed to provide financial advise must refrain from doing so according to the law. Additionally, no form of monetary compensation can be accepted for dispensing financial advice of any kind which is related to CFDs.
The CNMV In Spain
In Spain the regulators are constantly publishing alerts and warnings in regards to crypto schemes. The last one is in regards to one of the Bitcoin Profit versions. This particular scheme has been around since the beginning of the crypto industry and it refuses to die! Generally speaking the Spanish financial authorities consider CFDs to be unregulated financial instruments. To that end, any Spanish national is not entitled to investor protection under the law.
BaFin in Germany
The German Finance Authority has also recently tightened regulation around CFDs naming high risk and increased volatility as the main deciding factors. Additional factors such as hacking attempts, lax security, and lack of transparency regarding contract margins also contribute to that decision.
ASIC in Australia
In Part B of Information Sheet 225 ASIC refers to “misleading or deceptive conduct in relation to a crypto-asset or an ICO”. Specifically, ASIC mentions that scammers make fake claims by stating that certain products are “regulated assets” when clearly this is not the case. The reason for this type of deceptive activity is clear and it is specifically designed to alleviate any concerns or resistance by potential investors.
MFSA In Malta
The Malta Financial Services Authority is constantly adding unlicensed CFD brokers to its warning lists. This regulator is considered to be particularly prestigious, so any broker with an MFSA license enjoys the kind of privileges reserved for top tier brokerages. Their license is also one of the most expensive (if not the most). So any broker claiming to have an MFSA license better come up with an actual license number that can be cross-checked and verified with the regulator.
White Label Solutions For CFD Brokers
Before we continue we’d like to explain what a white label Broker solution is. To simplify matters, we would like to make an analogy to civil aviation. So let’s break down the industry into the various players.
- Plane manufacturers such as Boing or Airbus.
- Airlines who purchase the planes.
- Tour operators who deal with large groups of tourists.
- Travel agencies.
- The tourists or end users who use the service to fly.
So, in the CFD industry we have a similar format.
- Trading platforms that provide the technological solution or framework.
- CFD brokers are the ones who plug into the platform using their brand names.
- Affiliate networks that gather smaller affiliates or promoters in their network.
- Smaller affiliates that understand how to promote.
- The traders or investors who use the various services.
Panda Trading Systems, Leverate, and Capfinex are just a few of the various trading platforms that offer turnkey solutions for CFD brokers. Nobody ever talks about these companies since they are just technology providers and stay away from the limelight. However, these types of companies are the basis or infrastructure which powers the entire fraudulent CFD industry. These platforms don’t really care about regulation. In fact, all of their brokers are non-regulated. They have to be due to the enormous amount of regulation which has been passed by financial authorities.
To conclude, the legal landscape for CFDs is becoming very dicey indeed. Regulation is prompted by lack of oversight and transparency related to the big crypto exchanges such as the FTX debacle. But also by horror stories and official complaint forms that are mounting up by the dozens. Finding the right software and being able to generate money is largely influenced by the regulatory environment. It’s always a good idea to sniff around and conduct some proper research before deciding to risk your hard-earned money.