CONTRACTS FOR DIFFERENCE | CFD PROVIDERS
Contracts for Difference or CFDs are very risky investment products. Our office is one of the few specialists in international legal proceedings against CFD providers.
How do CFD providers acquire their customers?
If a potential client is an experienced trader and is actively looking for CFD providers, he will usually find a CFD provider by searching google. But there are also CFD providers who are looking for inexperienced clients who have not traded CFDs before. TV program “ Opgelicht ” showed that fake advertisements with famous Dutch people are used for this. This is also apparent from a publication by NRC Handelsblad. The English regulator FCA has issued strict sanctions in 2020 against CFD providers from Cyprus who recruit with “fake celebrity endorsements”. At the moment, recruitment is also done with fake advertisements without famous Dutch people, who are even more difficult to recognize.
Circumvention of ESMA ban and AFM decision
The European regulator ESMA and the Dutch regulator AFM have imposed strict restrictions on the type of CFDs that may be placed on the market. The CFD providers try to get around these restrictions by creating a “professional account” for the customer. However, the question is whether this is allowed. This is because the decisions of the regulators contain an anti-circumvention provision.
Conflict of interest
Many newbie CFD investors think that CFDs are a type of stock. That is not true. CFDs are betting contracts concluded with the CFD provider as the counterparty. If the CFD investor makes a profit, but the CFD provider loses. It’s that simple. As a result, the CFD provider has an interest in the CFD investor making a loss. Many people who start CFD investing do not realize this. The opposing interest between the client and the CFD provider influences the account manager’s attitude towards the client. He or she can easily manipulate the inexperienced investor in such a way that the investments eventually evaporate. As a result, sometimes hundreds of thousands of euros in invested funds go up in smoke. The attitude of the account managers can play a decisive role in the legal assessment.
Can you litigate in the Netherlands against CFD providers from abroad?
Yes, that’s possible. The CFD providers themselves say not: they have stated in the “small print” that the courts in their country of residence (usually Cyprus) have exclusive jurisdiction. Important breakthroughs have been made in 2020. Various Dutch courts have set aside this so-called choice of forum clause and declared themselves competent to hear the case. This has taken an important line of defense from the CFD providers. The consequences are serious: the CFD providers thought they were invulnerable because the duped investors would have to litigate in Cyprus, but that is not the case.
Legal aid against CFD providers
Our office is one of the very few Dutch law firms that provides legal assistance against CFD providers. In this field, complex specializations come together that other law firms do not have in-house. Expertise is needed in the field of (international) consumer law, international private law, the duty of care of banks and financial (supervision) law. Because we handle many of these cases, we can offer legal assistance at competitive costs.