First Anniversary of ESMA Product Intervention Measures
One year ago, the European Securities and Markets Authority forced brokerages with retail clients to lower their maximum leverage through FX Pairings. The leverage became a 30:1 maximum. Additionally, the ESMA enacted rules onto CFD Indices & Commodities that throughout the year were changed more drastically than anticipated. The ESMA claims that these changes were enacted in defence of consumers. However, many analysts and industry insiders will tell you otherwise.
This article reviews the profitability rates for retail clients, the loss of retail clients in the European Union and the rising popularity of foreign brokerages. Since the ESMA implemented these new product intervention measures, many retail clients have moved to brokerages in Africa & Asia. This is because offshore brokerages have higher leverages and better CFD offerings to clients. It’s become incredibly difficult for European Brokerages to compete with these foreign brokers as a result.
The ESMA, The Devil.
In defence of the European Securities and Markets Authority, they would’ve believed that by altering the policies for brokers, a better market could be created. However, the ESMA wasn’t expecting consumers to prefer high leverage over low. Even though high leverage can mean a substantial loss of funds, it can also be that a significant amount of funds is acquired. It’s a high risk for a high reward system that worked for years.
Since July of last year, the European Union’s Cryptocurrency Market has seen significant declines in consumer activity and trading volumes. Retail clients moved to overseas jurisdictions to regain their high leverage standpoint. Subsequently, this has seen brokerages in the EU suffer dramatically. Profits have dropped, jobs have been lost, and entire brokerages have shut down.
Cryptocurrency analysts believe that the ESMA purposely enacted these policies, knowing what it would do to the market space. Now, the number of professional clients in comparison to retail clients are significantly higher. The European Securities & Markets Authority wants this new financial industry to be available to wall-street level financiers and investors. The average trader it appears is slowly being forced out. However, this is all speculation from industry insiders and crypto analysts.
Professional clients maintaining publicly listed companies in the European Union have begun to move the marketspace towards CFD Products. This shows that without retail clients, the market is struggling to trade with FX Pairings.
Regulators taking over the market
Now that it’s been a year since the ESMA introduced these rules, national regulators in the European Union will now be handling the regulation process on the cryptocurrency industry. Federal regulators, like the British FCA, will begin regulating crypto products on August 1st, 2019. Initially, these regulators were meant to take over on May 1st, but the ESMA enacted a three-month extension onto the prior period.
The Western-European Financial Regulators, like in Italy & Britain, agree with the ESMA’s mindset. Both countries have already informed retail traders that the same maximum leverage of 30:1 will be implemented. All temporary measures enacted by the ESMA will become permanent. However, on the Eastern-European front, things are looking to be more favourable for retail clients. Countries like Poland and Cyprus are proposing unique ideas that will benefit both retail and professional clients.
CySEC, the national regulator for Cyprus, has proposed a new regulatory category that would apply to experienced traders only. This category would allow for increased leverages of 50:1. CySEC wants to have a mid-tier and low-tier category as well, which would allow for 30:1 and 20:1 leverage respectively. This format would allow for novice traders to train themselves to the experienced level.
Conclusion
The European Securities and Markets Authority, as well as national regulators, will need to monitor the cryptocurrency markets closely to ensure that it doesn’t fall entirely to its knees in Western-Europe. European Clients who are now trading through foreign brokerages have revelled in the high leverages, but as Eastern-European countries fight back against the low leverages, those consumers will slowly return to trade in Europe.
There is a chance that the European FX & Crypto Markets can move forward. Countries like Cyprus and Poland will be a shining example to the rest of the European Union. It’s known that consumers like high leverage, if they are willing to take on the risk, then don’t they deserve the reward?
Tom Arran
