Skip to main content
Home

ESMA

Extranet

Search form

Product Intervention

Product Intervention

ESMA’s power to temporarily restrict or prohibit the marketing, distribution or sale of financial products has been applicable from 3 January 2018 as part of a strengthening of investor protection introduced by the new MiFID regime.

ESMA currently has two product intervention measures in effect under Article 40 of the Markets in Financial Instruments Regulation (MiFIR). 

    The new powers came into effect on 3 January 2018

    Product Intervention powers became available on 3 January 2018, the date of the entry into application of the Markets in Financial Instruments Regulation No 600/2014 (MiFIR).

    WHO HAS PRODUCT INTERVENTION POWERS?

    ESMA, under Article 40 of MiFIR, and National Competent Authorities (NCAs), under Article 42 of MiFIR, have intervention powers.

    The other two European Supervisory Authorities, the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) and their NCAs, will also have intervention powers under MiFIR for EBA and PRIIPs for EIOPA. The entry into application of the intervention powers for these authorities was also January 2018.

    WHAT ARE THE FINANCIAL PRODUCTS THAT CAN BE SUBJECT TO AN INTERVENTION?

    Products that can be subject to a prohibition or restriction are financial instruments as defined in MiFID such as shares, bonds, funds (UCITS funds or alternative investment funds), derivatives etc.

    In addition, a prohibition or restriction on a type of financial activity or practice can be imposed.

    ENTITIES

    Product Intervention measures apply to any person marketing, distributing or selling financial instruments.  This includes investment firms and banks.

     

    Permanent and temporary powers

    NCAs, under Article 42 of MiFIR, have the power to permanently prohibit or restrict the marketing, distribution or sale of financial instruments or a type of financial activity or practise. When National Competent Authorities intend to take product intervention measures they have to notify ESMA. ESMA shall adopt an opinion on whether the prohibition or restriction is justified and proportional and shall publish it on its website.

    ESMA can only adopt temporary product intervention measures. MiFIR gives ESMA the power to introduce temporary intervention measures for a period of three months. Before the end of the three months, ESMA must review the product intervention measures and consider the need to extend them for a further three months. There is no limit to the number of times ESMA could renew product intervention measures. If ESMA does not renew the measures they will expire. 

    WHAT ARE THE CONDITIONS TO BE MET FOR THE ADOPTION OF A MEASURE BY ESMA?

    The issue raises either:

    • A significant investor protection concern; or
    • A threat to the orderly functioning and integrity of financial markets or commodity markets; or
    • A threat to the stability of the whole or part of the financial system.

    And:

    • No regulatory requirements under Union law that are applicable to the financial instrument or activity do address the threat/concerns mentioned above; and
    • No National Competent Authority or National Competent Authorities have taken action to address the problem or the actions taken do not adequately address the problem.

    PRODUCT INTERVENTION MEASURES CURRENTLY IN EFFECT

    On 27 March 2018 ESMA agreed on temporary product intervention measures on the provision of Contracts for Differences and Binary Options to retail clients. These measures were formally adopted by ESMA on 1 June 2018.  

    Binary Options 

     

    Since 2 July 2018, a prohibition on the marketing, distribution or sale of binary options to retail clients. ESMA’s Decisions describe the relevant evidence in relation to the provision of binary options to retail clients. A timeline with links to relevant documents and announcements can be found below. 

     

    Timeline

     

    - 27 March 2018 – ESMA agrees on temporary product intervention measures.

    - 1 June 2018 – ESMA formally adopts product intervention measures.  

    - 2 July 2018 – Prohibition takes effect for three months. 

    - 24 August 2018 – ESMA agrees to renew prohibition for a further three months, excludes a limited number of products from the scope of the measures.   

    - 21 September 2018 – ESMA formally adopts renewal of the product intervention measures

    - 2 October 2018 - Prohibition takes effect for three months. 

    - 9 November – ESMA agrees to renew prohibition for a further three months 

    - 2 January – Prohibition to take effect for three months

     

    Contracts for Differences (CFDs) 

     

    Since 1 August 2018 a restriction on the marketing, distribution or sale of CFDs to retail investors is in effect.  

    This restriction consists of:

    leverage limits on the opening of a position between 30:1 and 2:1, which vary according to the volatility of the underlying asset:

     

    - 30:1 for major currency pairs;

    - 20:1 for non-major currency pairs, gold and major equity indices;

    - 10:1 for commodities other than gold and non-major equity indices;

    - 5:1 for individual equities and any underlying not otherwise mentioned;

    - 2:1 for cryptocurrencies;

     

    a margin close-out rule on a per account basis;

    a negative balance protection on a per account basis;

    a prohibition on benefits to incentivising trading; and

    a standardised risk warning.

     

    ESMA’s Decisions describe the relevant evidence in relation to the provision of contracts for differences to retail clients. 

     

    A timeline with links to relevant documents and announcements can be found below. 

     

    Timeline

     

    - 27 March 2018 – ESMA agrees on temporary product intervention measures.

    - 1 June 2018 – ESMA formally adopts product intervention measures. 

    - 1 August 2018 – Restriction takes effect for three months.  

    - 28 September 2018 - ESMA agrees to renew restrictions for a further three months.

    - 23 October 2018 – ESMA formally adopts renewal product intervention measures

    - 1 November 2018 – restriction takes effect for three months. 

    LEGAL

    Product Intervention powers became available on 3 January 2018, the date of the entry into application of the Markets in Financial Instruments Regulation No 600/2014 (MiFIR).