Share prices for the larger CFD providers like IG, CMC and plus 500 took a big hit Tuesday as the FCA announced its new regulatory proposals. The new regulations proposed on the heels of the CySEC announcement of a bonus ban and default leverage of 50:1 just last week.
The move looks to be even harsher than the CySEC one in that there is a hard cap on leverage and an experience threshold for clients with less than 12 months to have leverage set at 25:1. There is also an all-out ban on bonuses of any kind regardless if it is related to trading or account opening.
FCA Looks for Added Transparency
An added level of transparency added to the regulations as brokers must now disclose the profit loss ratio of the clients. The FCA is taking the approach that products like CFDs are complex and the retail public has not been adequately informed of the risks.
FCA Will Address Binary Options
The FCA added that they will be looking at binary options as well. This most likely means that the FCA is not done with just these moves and we should expect additional regulations in the coming months.
FCA Says No More Bonuses
What will this mean for brokers going forward? The bonus ban probably won’t hurt the larger brokers but will hurt the mid-size and smaller firms. We might see some firms looking to exit as these rules might impact them in an already highly competitive environment. These moves may also lead to consolidation as brokers decide if a stricter regulatory environment is right for them.
The FCA move looks eerily like those taken in the US by the NFA and CFTC back in 2008 and 2009. The one major difference being the $20 million plus net capital requirement. Those moves resulted in a drastic reduction in the numbers of brokers and the impact is still being felt today. The question remains will UK brokers suffer the same fate as those in the US did?