Over the last two years, the Malta Financial Services Authority ('MFSA') has actively undertaken policy work on investment services licence holders carrying out online forex trading activities for the purpose of introducing additional regulatory requirements at the application stage. In effect, on 30th July 2015, the MFSA issued a public notice, wherein it set out the updated criteria regarding the licencing of entities that would wish to provide online forex trading to clients. The referred Notice was issued following various factors that the MFSA had come across in handling applications in this sector as well as various risk warnings issued at EU level alerting retail investors to the main risks involved in forex trading.

In the last few years, the MFSA has observed that online business models offering MiFID investment services are also distributing Contracts for Difference (hereinafter referred to as "CFDs") on an over-the-counter (OTC) basis. Therefore, for the purposes of this policy, it is hereby being proposed that MiFID online business models offering CFDs are subject to the requirements of the public notice (which is already in force) as well as the new and/or revised requirements which are being consulted upon in this paper.

CFDs and rolling spot forex are collectively referred throughout this document as "complex speculative products". Although binary options are deemed by MFSA to be speculative in nature, it should be noted that these products will be excluded from this consultation and would therefore be subject to a separate consultation process in the near future.

The operations of online business models offering MiFID investment services in relation to complex speculative products pose a high risk for retail customers who may not be fully conversant with the risks associated with such speculative trading. Furthermore, these types of activities give rise to investor protection concerns mainly due to the marketing strategies of such firms. In addition, retail investors do not understand the high risk, complexity and speculative nature of such products which are being provided by the above-mentioned firms.

A particular concern is the fact that these complex speculative products are being advertised via online platforms and are being sold without investment advice. This has therefore resulted in a significant detriment and unexpected losses to a number of retail investors.

In this context, a warning has been issued by ESMA and by the MFSA reminding investors and potential investors to be very attentive and vigilant when seeking to invest in these speculative products and to ensure that the provider is duly authorised to offer such services in relation to these products.

Further to these concerns, the MFSA is proposing further regulatory requirements for investment services licence holders distributing or intending to distribute complex speculative products. The MFSA is seeking feedback on the proposals set out in this consultation. Responses should reach the MFSA by 18 November 2016. New applications submitted after this policy comes into effect will have to adhere with the requirements of this revised policy. Feedback may be sent to communications@mfsa.com.mt or alternatively by conventional post and addressed to:

Communications Unit, Malta Financial Services Authority, Notabile Road, Attard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.