The first shock came to UK Forex Brokers after an unexpected result of the Brexit vote. The decision for the UK to leave the European Union had left many financial firms in the UK wondering what the future would bring.
Last week came a different shock in the form of proposed new regulations. These regulations include a leverage reduction of 50:1 and a decrease for inexperienced traders to 25:1. This will be a significant adjustment for brokers that have been offering clients 100:1 and 200:1 leverage. The reduction in leverage will take away the competitiveness UK Forex Brokers had.
FCA Has Been an Attractive Regulator for UK Forex Brokers
The UK and FCA have been an attractive choice for Forex Brokers in that they have the oversight of an established and well-respected regulator. It was excepted that the FCA would take a more hands-off approach, unlike regulators in the US and Japan. The results of US regulations back in 2008 were devastating. The industry went from 35 firms down to 4. The regulatory environment became too hostile for brokers to survive. The same can be said of the situation now for UK Forex Brokers. When regulators openly say that the retail public doesn’t understand the risks and the product it is then time to look for a new jurisdiction.
FCA Pushed Because of Bad Brokers
The problem the industry faces is that there are way too many bad actors and regulators get pushed to take such a hostile position. Bad brokers need to be exposed before it gets to a regulatory action where it is too late and too much damage is done.
CySEC Not an Option For Many
Now UK Forex brokers will look for a new jurisdiction and choices are getting limited. CySEC which would have been the obvious choice has also begun its crackdown on brokers with new rules on leverage and a bonus ban. CySEC has had a binary problem and has been handing down fine after fine.
Look for new jurisdictions to emerge like Mauritius and Vanuatu as a preferred choice for brokers. These locations might offer a more attractive regulatory environment in the beginning, but the industry still needs to bridge the divide between regulators and brokers.