FCA Adopting Leverage Caps on CFDs
The Financial Conduct Authority has verified that new rules are being implemented for the retail trading industry. The British Financial Regulator will be initiating new leverage caps on to contracts for differences that range from 2:1 to 30:1. These law rules are similar to the guidelines implemented by the European Securities and Markets Authority in 2018.
Additionally, brokerages and brokers will now have to terminate client positions when funds are unsubstantiated or fall below 50% at the open-trade margin. There will also need to be new negative balance security funds available, ensuring that their clients cannot lose the funds that they’ve deposited.
Risk Warnings, similar to the ones commonly seen on cigarette packs, will become mandatory for all brokers or retail trading firms operating in Britain or the United States. Firms and brokerages will also need to inform traders as to what percentage they’ll lose funds. Furthermore, another rule is being implemented that requires brokerages and trading firms to stop providing “Welcome Bonus-Esc” promotions or any other monetary benefits that would enhance trading volumes.
These new rules are set to be implemented as of August 2019.
This form of regulation has become repetitive and common-place for brokerages or retail trading firms in the United Kingdom. The laws implemented by the ESMA drastically altered markets in 2018, and allowed for all retail trading firms/brokerages to adapt quickly. However, there is one aspect of this announcement that might come as a shock to investors. The leverage restrictions aren’t just applying to contracts-for-difference, but they are referring to every trading service that resembles a CFD. However, this implementation won’t be initiated until September 2019.
Brokerages and Retail Traders in the European Economy won’t be able to access the United Kingdom CFD Markets. They are banned from conducting any financial trading in England & the UK. The Director of Competition & Strategy at the Financial Conduct Authority, Christopher Woolard, commented on the regulator’s announcement by saying: “Our intervention follows the evidence of firms aggressively marketing CFDs to the general public, meaning retail consumers are buying a product that isn’t appropriate for them.”
He went on to finish by saying, “We saw firms offering CFDs with increasingly higher leverage, resulting in high proportions of consumers losing money. EU rules are temporary. The new rules maintain and strengthen protections for consumers.”