GAIN Capital Adds to Broker Worries About Low Maximum Leverage

The company is outlining that a client push offshore is a big risk to brokers.

The parent company of and City Index, GAIN Capital, has announced the market open in the US, outlining its concerns about new upcoming ESMA regulations. On Friday, the supranational authority in the EU issued a communique highlighting that it is considering, among other measures, to cap maximum leverage at 1:30.

The news prompted a response from publicly listed companies in the UK today, with all CMC Markets, IG Group, and Plus500. The firms highlighted a series of issues with the proposed regulatory framework with IG Group focusing on the same point that GAIN Capital is – clients moving to unregulated offshore entities.

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“Mandating excessively low leverage levels will have unintended negative consequences, including driving retail investors offshore to brokers that do not offer the level of investor protections present in strongly regulated markets,” the company outlined in its statement.

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GAIN Advocated Tougher Client Onboarding and Higher Capital Requirements

Overall, GAIN Capital says that it is firmly committed to measures that enhance consumer protection. The most concerning detail for the company is “curbing aggressive marketing to inexperienced investors” and making sure that clients are well informed about the risks inherent in forex and CFDs trading.

GAIN Capital states that over the past year, the company participated in the consultations with the ESMA and the FCA. The firm defended a flexible approach to leverage rules, to prevent clients from choosing unregulated offshore brokers.

GAIN Capital also highlights that client on-boarding protective measures available to ESMA and the FCA, including requiring enhanced screening of potential clients and higher capital requirements for brokers.

Shares of the company have not moved much after the market open in New York. CMC Markets, IG Group, and Plus500 are about to close in London from the worst levels of the day.

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