EU License Passporting – Spanish CNMV allegedly plans actions to stop malicious practices

According to a report by Gerald Segal of FX News Group (FNG), the Spanish regulator CNMV is planning tough measures against regulated brokers to protect Spanish customers. Specifically, these are mainly CySEC regulated brokers who operate in Spain through the EU Passporting License. The CNMV measures are designed to prohibit the common illegal practices of many regulated brokers and their respective boiler rooms.

According to FNG, some 200 CNMV-licensed financial institutions are operating in Spain, while about 3,500 EU “passporting” firms – mainly foreign FX and CFD brokers – have received permission to service clients in Spain. And many of these brokers operate boiler rooms in Spain. Boiler rooms are a real plague in the gigantic Spanish-speaking world. The CNMV has published its own Boiler Room Guide and warns investors about their practices.

In particular, the CNMV plans to take actions against the malicious boiler room practice well-known in the scene:

  • urge private clients to register as professional clients is said to be targeted by the CNMV. By registering as a professional trader, private clients would then lose some legal protection they are entitled to as a consumer (aka private trader);
  • migrating clients from the regulated entity to an unregulated offshore entity. Clients of unregulated entities also lose protection measures such as the right to appeal to the national ombudsman.

Many of the CySEC and FCA regulated brokers have such unregulated offshore entities. The websites of the offshore brokers use the same brand name but are accessible through a different domain and have an offshore entity as operator.

It is in the interest of investor protection that the unrestricted, almost unbridled EU license passporting is stopped. Countries with weak or relaxed regulators such as Cyprus or Estonia open the EU financial market to cybercriminals and scammers. This poses an immediate threat to EU consumers.

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