FCA regulated FX and CFDs broker ActivTrades has issued its comments on pan European regulator ESMA’s proposal to limit CFD trading leverage to 30x.
ESMA’s proposals are now in the public consultation phase, with repsonses due by next week, February 5.
Similar to the reaction and analysis of (most) other leading regulated brokers, ActivTrades believes that ESMA’s proposal goes too far, and will eventually result in the unintended consequence of pushing retail traders into the arms of offshore, unregulated brokers offering the higher levels of leverage that many EU-based traders are used to.
The full comment made by ActivTrades CEO Alex Pusco follows:
Comments by ActivTrades on ESMA’s proposal
Alex Pusco, ActivTrades
ActivTrades has been putting the clients and their safety at its center since its very first day. We therefore always welcome any directive from the regulator going in the same direction.
However, we consider the former proposal by the FCA, about a leverage reduction to 1:50 similar that in place in the USA, as more suitable for the common goal of client safety instances than the 1:30 requested by ESMA. Our latest research has revealed that the majority of our clients are well aware of their actions. Therefore some of them are starting to consider these decisions as an intrusion or even a limitation to their freedom of investing in financial markets.
LOWER LEVERAGE DOES NOT NECESSARILY MEAN HIGHER PROTECTION
Paradoxically, a leverage of less than 1:50 could determine an opposite result than the one expected by the regulator, because many traders could decide to move to non-European brokers which allow a much higher leverage than the 1:30 proposed by the ESMA.
Unfortunately, the majority of those brokers do not offer the same standards of protection which are typical of the European ones. There could result in a massive exodus of traders from the Old Continent to brokers based in less regulated countries who are often unable to offer adequate services or meet the traders’ expectations.
RISKS FROM NON-REGULATED COMPANIES
Within the general regulatory framework, a further question arises as mandatory: hitherto the regulator has become stricter and stricter with continuous attacks on the industry. Once the new regulation is effective, how does the regulator plan to protect the European brokers currently under its protection? The protection of European brokers is vital in order to restrain the outflow of traders towards non-regulated companies, which provide very low guarantees, in Europe as elsewhere.
ONLINE ADVERTISING, THE GIMMICKS TO BYPASS THE BAN
We believe that the new regulations on advertising and promotion of trading to non-European brokers is simply insufficient. In fact, those companies may advertise their products through several different media platforms, such as sport sponsorships, primarily Formula 1 or football. Forums and blogs also may represent a further form of manipulation, bypassing the ban imposed by the European regulator. In addition to imposing new rules, it is necessary to ask questions (and find solutions) on how to truly protect European clients – with guidelines, tools and adequate checks – such as the measures American authorities have been enforcing for a while, for example forbidding foreign brokers from opening accounts for residents in the US.
About ActivTrades
ActivTrades, operating since 2001, is a leading independent broker providing trading services in Forex, Contracts for Difference (CFDs) and Spread Betting. The company aims to maximise clients’ trading through a unique mix of superior value proposition, diverse product offering, competitive spreads and outstanding customer service.
From its headquarters in London, ActivTrades serves an expansive global clientele who, over the years, has come to value its continuous innovations, excellent trading environment and effective risk management. ActivTrades’ customer service is available 24 hours a day, Sunday evening through to Friday, and can assist clients in 14 languages, including English, French, Spanish, Italian, Chinese and Arabic.