UK Regulator Could Get Tough on Futures Trading Leverage

The regulator has already proposed possible policy approaches with a focus on limiting the leverage offered to retails clients.

Britain’s Financial Conduct Authority (FCA) today published its Annual Report and Accounts looking back on the work carried out in the previous year, including the regulation of retail derivatives.

The report provides a useful insight into the FCA’s view on a number of regulatory issues that according to the watchdog could cause harm to UK investors and markets and also flags areas for a potential change to the related sectors in the future.

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Interestingly, the FCA said it probes the wider UK retail derivatives market and could heavily restrict the sale and marketing of other products, such as futures, to retail consumers who could rack up large losses. The regulator has already suggested possible policy approaches with a focus on limiting the leverage unsophisticated clients could use to juice up their bets.

The City watchdog keeps a closer eye on firms selling high-risk and speculative investments to retail clients following recent actions by its European peer to supervise sales of contracts for difference (CFDs).

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Crypto-related inquiries and complaints surge

In its report, the UK financial watchdog revealed a significant increase in the number of queries regarding cryptocurrencies, the majority of which relate to scams. This increase in the number of complaints/queries is another indication of the popularity of the industry despite the bear market conditions in the reportable period of 2018.

The FCA is already considering a ban on retail derivatives of cryptocurrencies, including CFDs, futures and options, as part of the UK authorities’ sweeping push to regulate the virtual asset class.

As the FCA explains, the proposed prohibition was suggested by the recently-established UK government’s crypto assets taskforce. Citing the “concerns identified around consumer protection and market integrity,” the report said a complete ban on the sale of crypto-CFDs to retail investors was under consideration of the FCA. In consultation with relevant stakeholders, the regulators touted the possibility of excluding derivatives referencing “cryptoassets that qualify as securities.” But in all cases, CFDs on cryptos would remain subject to the current restrictions on cryptocurrency CFDs, including lowering the maximum leverage that companies can offer.

The FCA was also concerned that firms might consider getting around ESMA’s measures through their overseas brands or by selling other similarly complex or highly-leveraged products. The City watchdog said, in common with other European regulators, it was aware that other products could create the same kinds of risks to consumers as CFDs.

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