Will ASIC Delay Leverage Restrictions Amid COVID-19?

The Australian Securities and Investments Commission (ASIC) announced this Monday that it will be changing its priorities amid the current coronavirus pandemic, and will refocus its regulatory efforts to deal with challenges created by the global crisis.

The Australian regulator will be refocusing its efforts until at least the 30th of September 2020. During this time, it will be dedicating its resources to responding to the pandemic, and address situations where there is the risk of significant consumer harm, serious breaches of the law, risks to market integrity and time-critical matters.

Because of this, the authority has immediately suspended a number of near-term activities which it deems are not time-critical. This includes consultation, regulatory reports, and reviews, such as the ASIC report on executive remuneration, updated internal dispute resolution guidance, and a consultation paper on managed discretionary accounts.

"ASIC is committed to working constructively and pragmatically with the firms we regulate, mindful they may encounter difficulties in complying with their regulatory obligations due to the impact of COVID-19," the regulator said in today's statement.

Will ASIC postpone Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term restrictions?

Following today's announcement from ASIC, within the foreign exchange (Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term) and contracts for difference (CFD) space, one question has arisen - will the regulator postpone the implementation of its leverage restrictions?

As Finance Magnates reported, in August of last year, the agency released its consultation paper on its proposed product intervention measures. Unlike ESMA, ASIC said that it would not distinguish between major and minor currency pairs. Instead, the watchdog proposes a single leverage ratio limit for all currency pairs 20:1.

For equity indices, ASIC suggests a ratio of 15:1, commodities excluding gold 10:1, Gold 20:1, crypto-assets 2:1, and equities 5:1. The implementation of these measures has so far been reportedly delayed as the Aussie watchdog received a high volume of responses to its consultation paper.

Speaking to Finance Magnates, Sophie Gerber, a Director at Sophie Grace and TRAction Fintech, said: "The media release from ASIC makes it clear that they will be sending updates to affected persons in relation to specific consultations that had been running prior to the coronavirus outbreak."

"Therefore we would expect an email to come through to recipients of the Market Supervision mailing list with any news about the CFDs conslutation paper. At this stage, we haven't seen any guidance from ASIC regarding the implementation of the leverage restrictions. It is however possible that ASIC may stay silent on this particular consultation since it has been so contentious."

Is now the right time for regulatory change?

When asked whether now was the right time for the Australian regulator to implement the regulatory changes, Gerber explained: "The product intervention proposal has already been highlighted as having a significant negative impact on tax revenues for the Australian economy, with Australian CFD providers being large taxpayers and stable employers. Offshoring clients to other jurisdictions means less tax revenue for the Australian Government and a shift in jobs.

"With the Australian government's expensive stimulus packages for shielding the economy from coronavirus continuing to be announced, it would seem sensible for the Treasury and regulators to delay measures which will reduce tax earnings for the government."