Laws governing margin requirements are set to go into effect next month in Poland. The updated rules will limit leverage for forex trading to 100:1. For forex brokers, the guidelines set forth occur after the Polish Financial Supervision Authority (aka KNF) spent parts of 2014 reviewing conduct in the industry, having initially presented a plan of a 50:1 leverage cap to the Ministry of Finance.
The proposal came after the KNF reviewed customer performance of forex trading during 2013. According to the findings of the Polish regulator, 81% of clients of forex brokers in Poland realized losses in their accounts. Within the industry, excessive leverage was cited by Polish forex executives as a contributing factor to the poor performance of retail traders and may have triggered the actions by the KNF.
With the leverage set to go into effect on July 16th, Polish and EU brokers have begun to prepare for the changes, alerting their client bases. Among firms that have already communicated to customers about the coming changes are Trade.com and Dukascopy. In regards to Dukascopy, the broker will only be restricting leverage for customers who reside in Poland, with the new margin requirements getting implemented at the end of this month.
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With the KNF’s new guidelines on leverage, one of the questions within the industry is whether it will be enforced on foreign brokers with Polish accounts. The official answer appears to be yes, with Swiss-based Dukascopy’s actions revealing their interpretation of the rules. Unofficially though, Polish industry insiders have questioned whether the KNF could enforce their rules on foreign brokers. As a result, the KNF’s rules have led to friction between them and brokers who are worried about the economic ramifications of the new laws if Polish customers elect to trade with foreign brokers providing looser margin requirements.
CySEC Backs the KNF
While the KNF may have difficulties in governing practices of brokers out of its jurisdiction, the regulator is receiving assistance from fellow EU financial supervisors. Among them, Cypriot regulator, CySEC, has today related to its member firms about the coming laws in Poland. In their circular, CySEC stated that beginning on July 16th, retail customers from Poland will be required to meet minimum margin requirements of 1% for derivatives instruments. The statement ended by relating “CySEC urges the CIFs to ensure that they fully comply with the relevant laws of the countries in which they operate.”
In terms of precedence, Poland isn’t the first country to initiate changes in margin requirements. Rules in the US and Japan led to leverage being capped at 50:1 and 25:1 respectively. In both cases, it led to customers being marketed by foreign firms that were offering greater leverage. However, crackdowns by regulators and the issuance of penalties on foreign firms, have ultimately reduced the numbers of unauthorized forex brokers marketing their services and accepting clients from the US and Japan. As such, with fellow EU regulators supporting the changes in Poland, the KNF is being empowered to supervise brokers with customers in their jurisdiction.