MiFID - Investor Protection

The European Securities and Markets Authority (ESMA) has agreed on measures on the provision of contracts for differences (CFDs) and binary options to retail investors in the European Union (EU).


The agreed measures include:

1.    Binary Options - a prohibition on the marketing, distribution or sale of binary options to retail investors; and

2.    Contracts for Differences - a restriction on the marketing, distribution or sale of CFDs to retail investors. This restriction consists of: leverage limits on opening positions; a margin close out rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a CFD provider; and a firm specific risk warning delivered in a standardised way.

In accordance with MiFIR, ESMA can only introduce temporary intervention measures on a three monthly basis. Before the end of the three months, ESMA will consider the need to extend the intervention measures for a further three months.  

Significant Investor Protection Concern

ESMA, along with National Competent Authorities (NCAs), concluded that there exists a significant investor protection concern in relation to CFDs and binary options offered to retail investors. This is due to their complexity and lack of transparency; the particular features of CFDs – excessive leverage – and binary options - structural expected negative return and embedded conflict of interest between providers and their clients; the disparity between the expected return and the risk of loss; and issues related to their marketing and distribution.

NCAs’ analyses on CFD trading across different EU jurisdictions shows that 74-89% of retail accounts typically lose money on their investments, with average losses per client ranging from €1,600 to €29,000. NCAs’ analyses for binary options also found consistent losses on retail clients’ accounts.

These measures were agreed by ESMA’s Board of Supervisors on 23 March 2018.

Steven Maijoor, Chair, said:

“The agreed measures ESMA is announcing today will guarantee greater investor protection across the EU by ensuring a common minimum level of protection for retail investors. The new measures on CFDs will for the first time ensure that investors cannot lose more money than they put in, restrict the use of leverage and incentives, and provide a risk warning for investors. For binary options, the prohibition we are announcing is needed to protect investors due to the products’ characteristics.

“The combination of the promise of high returns, easy-to-trade digital platforms, in an environment of historical low interest rates has created an offer that appeals to retail investors. However, the inherent complexity of the products and their excessive leverage – in the case of CFDs – has resulted in significant losses for retail investors.

“A pan-EU approach is required given the cross-border nature of these products,  and ESMA’s intervention is the most appropriate and efficient tool to address this major investor protection issue.”  

CFDs – agreed measures  

The product intervention measures ESMA has agreed under Article 40 of the Markets in Financial Instruments Regulation include:

1.    Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:

·         30:1 for major currency pairs;

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

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

·         5:1 for individual equities and other reference values;

·         2:1 for cryptocurrencies;

2.    A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs;

3.    Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;

4.    A restriction on the incentives offered to trade CFDs; and

5.    A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

Next steps

ESMA intends to adopt these measures in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website.  The measures will then be published in the Official Journal of the EU (OJ) and will start to apply one month, for binary options, and two months, for CFDs, after their publication in the OJ.  


Frequently Asked Questions


The European Securities and Markets Authority (ESMA) has included 7 new or updated items in its Questions and Answers (Q&A) document on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR).

The updated Q&As are on the topics of inducements (research) and information on costs and charges. The other four Q&As are new and relate to the topics of inducements, post-sale reporting and other issues


The overall MiFID II Q&A provide clarifications on the following topics:

  • Best execution
  • Suitability and appropriateness
  • Recording of telephone conversations and electronic communications
  • Post-sale reporting
  • Record keeping
  • Investment advice on an independent basis
  • Inducements (research)
  • Information on charges and costs
  • Underwriting and placement of a financial instrument
  • Client categorisation
  • Inducements
  • Provision of investment services and activities by third country firms
  • Application of MiFID II after 3 January 2018, including issues of ‘late transposition’
  • Other issues

MiFID II applies from 3 January 2018 and will strengthen the protection of investors by both introducing new requirements and reinforcing existing ones. The purpose of this Q&A is to promote common supervisory approaches and practices in the application of MiFID II/MiFIR for investor protection topics.


ESMA will continue to develop this Q&A on investor protection topics under MiFID II in the coming months, both adding questions and answers to the topics already covered and introducing new sections for other MiFID II investor protection areas not yet addressed in this Q&A.

Steven Maijoor, ESMA Chair, delivered the opening remarks at the BVI 2018 Annual Reception in Brussels on the evening of 20 March. 

His remarks focused on issues related to:

Brexit and the issue around ESMA's work on delegation -

"The decision of the UK to leave not only the EU but, as stated by the UK Government, also the Single Market, has led to a situation in which there is the potential for a significant shift of entities and activities from the UK to the EU27​."

​"This triggered concerns about the risk of regulatory arbitrage between the EU27 Member States seeking to attract this business. I am realistic enough to know that such competition for business will always be with us. What we as ESMA felt very strongly was that in the contingency plans that businesses were drawing up, regulatory or supervisory arbitrage should not be a factor.

"As I have repeatedly clarified, we are not looking to question, undermine or put in doubt the delegation model. We know that this is a key feature of the investment funds industry and that the flexibility to organise centres of excellence in different jurisdictions has contributed to the industry’s success. To put it more bluntly, to us delegation is not a dirty word.

"What our opinions are seeking to address is the risk of letterbox entities. I hope you would all agree that it is in no-one’s interest to allow the creation of such entities. Both the UCITS Directive and the AIFMD explicitly require there to be enough substance in the entity established in the home Member State."

"In other words, financial centres in the EU27 should be free to compete based on the particular strengths they can offer relocating firms, like speed and efficiency, but in all cases the EU rulebook should be consistently applied. Otherwise, there could be insufficient substance in the EU27, which may pose risks to ESMA achieving its stability and investor protection mandates."

Costs and Charges - MiFID II

"The first thing I want to say is that I believe the changes to cost transparency introduced by these two pieces of legislation are already having a positive impact. I have said before that in order to increase investors’ confidence in financial markets, they need to have greater trust in the entities producing and distributing investment products. An important step towards achieving that goal lies in greater transparency about the products themselves and the service provided."

"Let us take the example of unbundling. Under MiFID II, inducements are banned for independent advice and portfolio management. For other services, inducements are permitted if they, among other things, improve services provided to individual clients."

"This should help ensure better use of the research budget instead of firms, and ultimately their clients, paying for low quality, duplicative research. Managers will thus be able to use the funds allocated to research more efficiently. The new rules should also provide better opportunities for independent research providers to compete on the quality of the research provided and prompt portfolio managers to acquire research from a wider variety of research providers."

"On the question of whether to include disclosure of transaction costs, I think it is only fair that investors are fully informed about something that can have a material impact on their returns, especially when the impact can vary significantly across different products. Indeed, I would go so far as to say that we will look back on this debate in a few years’ time and wonder how it could ever have been so controversial. PRIIPs and MiFID II have really embedded the idea that no cost, whether explicit or implicit, should escape disclosure."

"On the methodology for calculation, we are aware of the vocal reactions of stakeholders and the extensive coverage in the media of supposed flaws. What I would say to you is that we are ready and willing to look at this issue but that we need to see concrete evidence to assess whether these flaws are real. In the absence of any such evidence, we maintain our view that the methodology is sound and that negative transaction cost figures should be extremely rare."

​CMU/ESAs Review

"As envisaged in the CMU Action Plan, but also emphasised by the European Parliament Resolution in July 2015 [on building a capital markets union], the “legal and supervisory frameworks play a fundamental role in avoiding excessive risk taking in financial markets, and [therefore] a strong CMU project needs to be accompanied by strong EU-wide and national supervision.

"I would like to underline that the Commission’s legislative proposal on the ESAs review from September last year clearly delivers on these expectations. However, as it quickly emerged after the publication of the proposal, a number of Member States in the Council have not shared my excitement at seeing this comprehensive set of amendments to the current frameworks of ESMA, EBA and EIOPA."

"...to those who see only additional complications and burdens from a strengthened role for ESMA on delegation, I would point out that the Supervisory Coordination Network (SCN) has been doing similar work over the past six months without creating any of the disruption that has been warned about. In addition, I would like to highlight that the tools we would be empowered to use under the Commission’s proposal – namely opinions – are a very standard convergence tool that we have used hundreds of times already on a range of different topics, including under MIFID I and MiFID II."

"Another point some Member States and parts of the industry have been critical about is the new funding model. I and my colleagues at ESMA looked at these numbers, and the shift to the industry-funded budget for indirect supervision, as proposed by the Commission, would inter alia impact about 2,500 investment management companies across the EU. Their yearly contribution, however, based on ESMA’s 2018 budget and the proposed distribution key would mean an average of €650 per entity annually. I cannot imagine that this level of burden could significantly impact the profitability of the BVI’s membership."

"At the same time I predict that with a more independent funding base, ESMA would be able to expand its supervisory convergence activities, which ultimately benefits the CMU project, and both consumers and the financial industry. Finally, I think it is important to keep in mind that ESMA’s Board of Supervisors would retain the budget approval powers, and the Member States would continue to co-decide the general EU Multi-Annual Financial Framework which also applies to ESMA.

"The last aspect I want to mention in the context of the ESAs review are ESMA’s level 3 measures. People say “don’t fix what is not broken” and this in my opinion applies to the process governing our guidelines and Q&As. These supervisory convergence tools have been used by ESMA mostly “per request” of individual national regulators and industry stakeholders seeking more guidance.

"While we consult extensively on draft guidelines, the Q&As are reserved for more technical issues and clearly better suited for providing faster responses. In my view there is no need to change the governance principles around these supervisory convergence tools, however, it does not mean that we should not explore ways to improve our stakeholder management. For this reason, last month, we launched a dedicated stakeholder relations survey, which will remain open until the end of March. I would appreciate receiving your feedback on this important matter."