UK financial regulator The FCA issued today its 2017 Mission Statement and Business Plan, plus its Sector Views which highlight the issues and developments the FCA sees in the sectors it regulates.
While there seems to be a lot new now at the FCA – including a quietly unveiled new-look website and logo – the FCA didn’t give much clarity as to how it is leaning in its decision-making process via-a-vis the leveraged trading sector.
The FCA issued new proposed rules back in December to govern leveraged trading products and the brokers who offer them – namely Forex, CFDs and spread betting. The key gist of the rules was a proposed 50x leverage cap, and ban on “bonus payments” to retail traders.
At the March 8 comment deadline, we exclusively reported that the FCA had received a deluge of responses, and was likely therefore to “take its time” in coming to a final decision, especially regarding the leverage issue. We understand that some of the submissions made by some of the leading UK CFD brokers such as IG Group Holdings plc (LON:IGG), Plus500 Ltd (LON:PLUS), and CMC Markets Plc (LON:CMCX) centered on the argument that an overly-ambitious leverage cap would do more to hurt consumers than help them, by leading them to unencumbered offshore brokers – a phenomenon we have been seeing in places such as Belgium and France, where well-meaning but over-ambitious regulators have either banned leveraged trading altogether, or banned the advertising of leveraged products.
So what did the FCA say?
On the timing of new CFD regulations, the FCA stated that it will publish its
Policy Statement on the matter “later this year“. That of course could mean next week or next month. But since the FCA changed “later this Spring” (in its most recent communique) to “later this year”, it sounds like it might be a while until we find out what it decides.
The FCA also stated that it will conduct “follow-up work” to address the risks in the CFD sector that it has identified in previous thematic work. This work will apparently focus on the “failings the regulator identified in the Appropriateness Tests it conducted”. While not totally tipping its hat, that statement seems to us to indicate some flexibility in the blanket 50x leverage cap, possibly leaving the door open to a softer leverage limit such as was introduced by CySEC in Cyprus, allowing for higher trading leverage for more experienced traders.