As part of its ongoing efforts to enhance consumer protection, the MFSA has updated the Conduct of Business Rulebook to implement important changes essentially restricting the marketing, distribution or sale of Contracts for Differences to retail investors. This update follows an extensive consultation process which the Authority held with industry earlier this year.

During the last years, the European market has witnessed a rapid increase in the marketing, distribution or sale of CFDs to retail clients across the EU. CFDs are inherently risky and complex products.

A CFD is a derivative instrument 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. CFDs 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. Rolling spot forex contracts are also in scope.

European regulators have expressed widespread concerns on the increasing number of retail clients trading in these products and having them losing their money. These concerns are also supported by the numerous complaints received from retail clients across the EU who have suffered significant losses when trading CFDs.

The permanent restrictions, introduced in the Conduct of Business Rulebook, include among other things, requirements that ensure that investors do not lose more money than they put in. Moreover, there are also restrictions on incentives offered to trade in CFDs and investors must be provided with understandable risk warnings so that they are aware of the high degree of risk involved when investing in such products.

Moreover, the MFSA has introduced standardised warnings on the risk carried by such investments to ensure that customers are made aware of the high degree of risk involved when investing in such products.

MFSA's head of Conduct Supervision Dr Michelle Mizzi Buontempo, remarked that "these rules, in line with the MFSA's vision, seek to strike a balance between the market's need to provide fair competition and client choice, while at the same time protecting consumers of financial services, and safeguarding the integrity and stability of the financial system".

The European Securities and Markets Authority has issued a formal opinion on the MFSA's national product intervention measures relating to contracts for differences.