ESMA replaced the Committee of European Securities Regulators (CESR) on 1 January 2011. It is one of the three new European Supervisory Authorities set up within the European System of Financial Supervisors.
ESMA works in the field of securities legislation and regulation to improve the functioning of financial markets in Europe, strengthening investor protection and co-operation between national competent authorities.
The idea behind ESMA is to establish an “EU-wide financial markets watchdog”. One of its main tasks is to regulate credit rating agencies. In 2010 credit rating agencies were criticized for the lack of transparency in their assessments and for a possible conflict of interest. At the same time, the impact of the assigned ratings became significant for companies and banks but also states.
In October 2017, ESMA organised its first conference which was held in Paris. The event examined issues critical to European financial markets and was attended by 350 participants.
The first company that became fully compliant with new ESMA regulations was London-based fintech startup capital.com.
ESMA’s Product Intervention Measures
ESMA announced that from 1st August 2018 there will be some modified trading restrictions concerning contracts for difference (CFDs) and spread betting for retail clients. The most significant change is that the leverage that retail clients can trade with will be restricted to 30:1 and 2:1, depending on the volatility of the underlying asset traded. These restrictions apply to traders categorized as retail investors only. Experienced traders, which fall under the category of professional clients, are excluded. This also means that professional clients do not receive the same investor protections as retail investors. The restrictions, initially imposed as a temporary measure, were renewed on February 1, 2019 for a furher three-month period.