Three of the leading UK forex brokers – CMC Markets, IG Group, and Gain Capital’s City Index, are forming a contract for difference (CFD) providers association as a response to the recent announcement of the UK Financial Conduct Authority (FCA) that it intends to alter the regulation of forex trading service providers, finance news provider Finance Magnates reported, citing unnamed sources close to the matter.
Following the recommendations and guidelines of the European Securities and Markets Authority (ESMA) from mid-October, the FCA is setting a new leverage maximum of 50:1 (25:1 for inexperienced traders with less than 12 months of trading). It is also banning bonuses or other benefits to promote risky trading instruments. The Cyprus Securities and Exchange Commission (CySEC) has also announced it will alter its requirements in line with ESMA’s recommendations. While the new requirements set by the CySEC sounds rather recommendation, the UK watchdog uses a more compulsory tone.
The newly-formed lobby organization could unite UK brokers in discussing and fighting the local regulator’s recently announced regulatory changed regarding the forex industry. The new rules are proposals at this point and the regulator is seeking market participants’ feedback. The newly-formed CFD association will facilitate brokers in communicating their concerns and worries.
Brokers’ immediate reaction is no surprise since the UK is the largest forex market globally. It accounts for 37% of the entire forex market. All three brokers quickly came out with statements regarding the UK regulator’s decision shortly after it was announced. IG Group raised a question, asking why the new FCA proposals “do not appear to directly apply to firms operating from outside the UK offering CFDs and binaries to clients in the UK on a cross-border services passport from another EU member state”. Meanwhile, CMC Markets seemed to be unbothered by the new requirements and Gain Capital said it did not expect to be affected by potential new rules since its practices are already consistent with the proposed changes.