As France’s watchdog remains vigilant over brokerage firms operating in the country, the Autorité des Marchés Financiers (AMF), the nation’s securities authority, today added further clarification to the scope of its issued Sapin II act, which restricts public advertising of risky financial products like forex, CFDs and binary options.
The well known details about the full advertising ban on binary options offerings are all in place, but the update notes that promoting CFDs instruments would be allowed under new guidelines provided that it “contains a built-in protection mechanism that structurally prevents the client from losing more than he initially invested.” In addition, the AMF requires the brokerage firm to the protection until the CFD contract expires.
Upon request by the AMF, the broker must be able to prove the existence of this extended protection by submitting a certificate from a competent French or European entity that confirms its compliance with these requirements.
Sponsorship deals are also forbidden
The French watchdog has excluded vanilla options from the scope of the prohibition since the instrument type does not meet any of the three statutory criteria that the AMF has set out.
Namely, the transactions that its maximum risk is unknown upon opening, the risk of loss is greater than the initial investment or lack the balance between potential loss and profit will fall within the scope of prohibition of financial promotions.
Similarly, the hedging transactions that limit investment risk with the use of derivatives, such as options and futures contracts, might also be excluded from the AMF’s ban under the new explanations.
The latest update has also explained what was meant by the term “the electronic communication” which was generally defined in the Act as signs, signals, writings, pictures or sounds. The watchdog’s recent definition covers several modalities that now include, in addition to conventional online ads, social media, sponsored links on search engines, webinars, web conferences, training courses or other e-learning tools.
Interestingly, the sponsorship agreements were also forbidden so long as their purpose was linked to promoting trading of financial derivatives or advertising investment services.
Finally, the AMF has reminded the industry participants that any entity identified as violating the aforementioned provisions will be subject to an administrative fine of up to €100,000.