FCA considering to lift the leverage cap on CFDs

While the United Kingdom is still in the fog of Brexit uncertainty the Financial Conduct Authority has decided to act and reduce the fears of those who are operating in the retail industry of the country. Today morning, the regulator issued a tweet stating that it is considering to soften leverage restrictions and lift the cap on the sale of contracts for difference (CFDs) to retail traders.

The tweet reads that the regulator will be opening a consultation on loosening restrictions on CFDs. More precisely, how CFDs are marketed, distributed and sold to retail consumers. Although, CFDs might not be the only trading product to have loosened restrictions, as the tweet states the FCA will be opening a similar discussion on other complex derivative products including turbo contracts.

This news comes shortly after the financial regulator of the UK had announced that it is making binary options ban permanent. The breaking news was commented by the representative of the FCA, who stated that the regulator is most likely to reduce leverage restrictions on CFDs. As he states, it is likely that the leverage on CFDs will be lifted to 1:300, however, the number might be pushed down to 1:200. While the binary options ban will not be lifted, retail traders will have access to turbo certificates. The leverage for turbo certificates can be 1:50 or even 1:100.

FCA taking advantage of Brexit

Seemingly, the decision to lift the leverage cap is FCA’s attempt to take advantage of its future position outside the European Union. While there is no clarity about the country leaving the EU when the Brexit will happen the UK will be outside of the European Securities and Markets Authority control.

Being independent of ESMA will give the possibility to the British regulator to be more flexible. For the retail brokerage world, this flexibility can be translated into loosened restrictions on leverage caps. This, on the other hand, might result in bringing European-based businesses to London and making FCA regulated brokers more attractive for retail traders.

At the same time, FCA is willing to fight better with the brokerages that are regulated by the offshore regulators. Making the leverages high again in the UK means that the regulator will out-compete the brokers regulated in Belize, Vanuatu or the Marshall Islands. After all the United Kingdom had managed to be positively impacted by Brexit.

Unfortunately only for the April Fool’s day.