[Newsflash n. 24]

 

With recent Communication of 7 February 2017, Consob has issued a warning to the market concerning the marketing of contract for difference (CFD), rolling spot forex and binary options.

In light of the increasing dissemination of such speculative forms of investment, the authority has raised the level of awareness of these products alerting investors that their structure is such that they embed a number of significant risks that can be hardly understood and assessed. As such, CONSOB considers the said investments as not suitable for the majority of investors.

CONSOB believes that the following factors increase the risk for investors to take an informed investment decision and to incur higher losses than expected: (i) the leverage factor (which may entail higher losses than the capital invested), (ii) the actual functioning of these instruments like a bet (often emphasised by the very short duration – for example, one hour, or even a minute), (iii) the way they are marketed (for example, through widespread and misleading advertising campaign, insistent and repeated phone calls, mass email dispatch, offering of bonus, discounts or other incentives, often magnified by the use of internet, which simplify the access to the wide audience).

In addition to recalling the attention of investors to effectively assess and understand all of the risks of investing in these speculative products, CONSOB focuses on the entities marketing such products. In particular, according to CONSOB’s findings, many entities offer such contracts without authorization in Italy or even without being subject to administrative supervision by any authority.

Consequently, CONSOB invites investors to always make sure that the offeror is authorized to operate in Italy, (i)  by consulting the dedicated lists kept by Consob (in case of investment firms) or Bank of Italy (in case of banks), available on their respective corporate websites, and (ii) by always paying due attention to the section “Notices to investors” (“Avvisi ai risparmiatori”) on its website, which contains reports about subjects illegally engaged in financial activities, issued by the national Authority as well as foreign supervisory authorities.

Interestingly, CONSOB highlights how it felt the need to issue this Communication also due to the circumstance that, under current EU legislation, it has in fact limited direct powers of supervision and/or intervention in this topic. Indeed, (i) in relation to banks and investment firms of EU or non-EU entities acting through a branch in Italy, Consob can only monitor that the branch complies with the conduct of business rules when liaising with Italian clients, (ii) in relation to EU or non-EU banks operating in Italy under the freedom to provide services, the supervisory power remains entirely in the hands of the competent authority of the home Member State.

In addition, according to CONSOB, an additional element that investors should consider is that disputes concerning such CFD, rolling spot forex and binary options purchased from Italian EU investment firms without a branch in Italy cannot be brought before the new Arbitration Chamber for Financial Disputes, recently established by Consob.

In light of the above, the key warning that CONSOB wishes to communicate to the market is that the investment in CFD, rolling spot forex and binary options:

  • is not suitable to the majority of investors,
  • may entail higher losses than the capital initially invested,
  • shall be made only after having accurately assessed and understood the risks involved,
  • shall be entered into only after having verified and made sure that the offering entity is authorised to act in Italy.

The full text of the Communication can be found here, available in Italian language only.

Please do not hesitate to contact us, should you wish to receive further information or clarification on the subject matter of this Newsflash.

 

Contacts:

Vito Vittore
Senior Partner

Elena Pagnoni
Of counsel

Chiara Calzecchi Onesti
Associate