The Australian Securities & Investments Commission has requested the assistance of the public. This applies specifically towards contracts-for-differences in the cryptocurrency market, with ASIC requiring their thoughts on the proposed regulations that came in late 2019. These regulations created a divergence in the Australian market, creating adverse effects for CFD and FX Trading. Named the Consultation Paper 322, there are eight conditions listed against providers of CFD and FX products.
These mainly apply to leverage restrictions, which include a 20:1 Cap on Gold and 15:1 for Stock Indices. This extends towards additional leverage restrictions on commodities and contracts-for-difference, which are listed at 10:1 and 2:1 respectively. It should be noted that these proposed restrictions onto the cryptocurrency industry have received continued backlash from supporters.
The Australian Securities & Investments Commission has followed the similar actions of the ESMA. Market restrictions at 30:1 and 25:1 was legalized by the European Securities & Markets Authority. Since that decision, substantial alterations in how the cryptocurrency and commercial space in Europe operates has been extensive. Considering that the proposed modifications with the Australian Securities & Investments Commission are more severe than Europeans, traders are becoming concerned that the fallout could be worse. The proposed caps from ASIC follow more in line with South Korea, Singapore and Hong Kong. Those respective nations have experienced yearly declining volumes in trading activity and client acquisition.
The Impact
There are substantial concerns regarding the onboarding of these leverage restrictions, with a large percentage of brokerages moving operations to foreign nations. These concerns extend towards the total national trading volumes, with various analysts researching how previous market restrictions impacted the Japanese and European spaces. It’s been noted that after the initial twelve-month-period, an influx of client acquisitions is seen, and trading volumes return. This has mainly applied towards the derivatives market, with CFD and FX products slowly return to previous volumes. It should be noted that throughout the 1st Quarter of 2018, the cryptocurrency industry earned EUR 22 Trillion. These volumes increased an additional six trillion after twelve months.
Looking towards the Japanese cryptocurrency market, similar results have been seen after the initial product intervention measures. Their initial measures were enacted five years ago, seeing volumes exceeding 12+ Trillion Yen. Those volumes after a twelve-month-period increased to 15+ Trillion Yen. Over-the-Counter Trading also saw substantial growth of 50.2%. Those volumes have remained consistent throughout the last five years. Subsequently, Australian Brokerages should wait-out the initial period and wait for volumes to return to previous standards. It’ll enable them to earn increased profits after twelve-months, with switching to foreign nations taking two-years to become profitable.
Non-Regulatory Threats
There are threats to the Australian market space that exceed the product intervention measures from ASIC. Large-scale corporations like Apple and Google have implemented bans towards cryptocurrency or blockchain applications. This has made it drastically harder to locate mobile trading options. There are also bans applying towards affiliates, advertisements and introductory products. Brokerages wanting to exceed past the bans listed towards advertisements must become certified from the Australian Securities & Investments Commission. Though it should be noted that regardless of the certification level, the Facebook company has terminated all variations of CFD Advertising. That leaves brokerages from accessing a substantially broad audience in Australia.
Another element that’s created alterations in the Australian Cryptocurrency Markets is the “Compliance Requirements” implemented by credit-card payment providers. Certain circumstances can see brokers have terminated access to these processing technologies. When it applies to MasterCard, contracts-for-difference are listed as “High-Risk Securities”. This creates prolonged periods for chargebacks, with the typical 180 days being increased to 540. Substantial due diligence regulations are implemented with these credit-card payment providers as well, with cardholders demanded to provide legal verification of their jurisdictional approval. This extensive process has drastically limited the number of client acquisitions seen in Australia.
ESMA Similarities
Numerous similarities apply to the proposed ASIC regulations when looking towards the ESMA. This includes the pricing requirements and execution conducts. Policies surrounding executions notify that Australian traders will have to make their investments public knowledge. This will enable ASIC to monitor their executions, determining the methodology and effectiveness of their valuations. One of the few benefits provided to traders included knowing the details regarding executions, with the European Securities & Markets authority making their regulation vague. It’s forced brokerages to create requirements of their own, facing multiple consequences with unfair practices from the ESMA. From all accounts, these practices of limited knowledge aren’t being followed by ASIC.
One of the core problems surrounding the proposed regulations from ASIC pertains towards in-house traders. They’ll face multiple challenges that affect how their internal process are valued and recorded. Obligations to provide documentation on executions will be a nearly impossible task for in-house traders. This will subsequently create a market space that is dominated by brokerages. However, it should be noted that the Australian Cryptocurrency Industry has become competitive and aggressive. What happens moving forward with the opinions of Australian citizens is unknown.
Haydn Franklin
