ESMA, the organization that watches over financial markets in the EU, has put out a report about companies that provide copy trading.
The primary purpose of the briefing is to enhance investor safety and create consistency in supervision across the EU.
Copy trading companies offer investors the chance to copy the activities of experienced traders. Since this practice is becoming increasingly popular, ESMA is making sure that these businesses comply with the regulations set out in the Markets in Financial Instruments Directive II.
ESMA’s 25-page document provides guidance on the categories of copy trading and details the regulator’s requirements for supervision in various areas:
Information provision, product governance, assessing suitability and appropriateness, remuneration and incentives, and qualifications of those who are copied from.
Regulated firms should make sure their marketing messages are clear and accurate, including all costs and fees related to copy trading. They must put the clients’ interests first, and traders whose trades are replicated need to be qualified and experienced.
ESMA and other authorities are keeping an eye on this industry and may introduce more regulations in the future. It has already taken into account Q&A published in 2012 about the legal status of automatically executing trade signals.
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