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Leverage is not the most important part of new FCA regulations
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Loading...UK brokers are eagerly awaiting the final verdict from the FCA regarding regulations for the retail trading industry.
It’s been about half a year since the UK Financial Conduct Authority (FCA) announced that it intends to introduce substantial changes to its regulatory framework for retail brokers in the UK. Companies that are operating in the industry have been anxiously awaiting the decision of the watchdog regarding new rules which initially included caps on leverage and a ban on bonuses.
Fast forward to June, when the regulator is preparing to release its final verdict on a new framework that governs the brokers that are on-boarding retail clients. Industry insiders have shared with Finance Magnates that the FCA received an unprecedented amount of feedback from brokers and their clients alike.
The watchdog has been thoroughly reviewing the documents and discussing with the industry in detail what it considers to be prudent action when it comes to new regulations.
The most notable outcry from the industry back in December was the introduction of a leverage cap at 1:50. Insiders familiar with the discussions are noting, however, that brokers are beginning to worry much more about other aspects of the incoming regulatory changes.
A fresh example from the aftermath of the global financial crisis and the regulatory environment in Japan was the introduction of a cap on leverage in the country at 1:25. The long-term result of this? Japanese brokers are still reporting the highest volumes in the industry, successfully weathering a cap on maximum leverage in two stages – the first one at 1:50 and the second one at 1:25.
It took the industry some time to realize that even if those changes are enacted, they won’t mean the end of the world. With maximum leverage concerns taking a back seat, the industry is focusing instead on what the FCA might do in order to prevent unsophisticated clients from opening accounts.
A spokesperson from London-based non-profit organization UK CFD Trading & Compliance Forum said: “Leverage is an important aspect of the retail-focused derivative product that has sky-rocketed in popularity since the advent of online trading.”
“That said, a major issue for providers are the rules around client onboarding, individuals that would ‘not’ be deemed suitable candidates to trade in high-risk derivatives were quickly lining up to trade, without having the correct knowledge and understanding about the intricacies of the product,” the spokesperson elaborated.
As the FCA is contemplating introducting the new rules later this year, possibly as soon as the end of this month, the client onboarding procedure is taking center stage for UK brokers. From what industry insiders have shared with Finance Magnates, the FCA may be considering some requirements for clients to sign certain documents and/or to send specific emails to brokers certifying that they understand the risks involved in margin trading.
Source: financemagnetes.com
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