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FCA makes ESMA’s CFD restrictions permanent, but allows higher leverage on bonds

UK’s Financial Conduct Authority (FCA) confirmed its decision to permanently restrict the sale of CFDs and CFD-like products on a national level earlier this week. While most of these restrictive rules mirror ESMA’s product intervention measures, there are some slight alterations, such as the higher leverage allowed for the sale of government bonds.

 

FCA’s rules are aimed at guaranteeing consumer protection and will come into effect from the 1st of August for CFDs and on the 1st of September for CFD-like options.

 

More specifically, these measures include a requirement for all brokerages to provide negative balance protection to all account holders, to close out a customer’s position when their funds fall to 50% of the margin needed, to place a standardized risk warning on their websites, to stop offering monetary and non-monetary inducements to encourage trading (such as bonuses), as well as to offer leverage of 1:2 to 1:30, depending on the asset class.

 

Under the ESMA’s guidelines, brokers are allowed to offer leverage no greater than 1:5 for government bonds, but the FCA stated it will enable retail traders to use leverage as high as 1:30 for this financial instrument.

 

In response to objections of the Pan-European regulator that such alterations of its guidelines are “not justified and proportionate”, the British regulator said that offering higher leverage in government bonds would not pose a risk to investors, as assessed using the ESMA’s own methodology. Besides, noted the FCA, a leverage of 1:30 does not exceed the highest leverage limit for other asset classes in ESMA’s measures.

 

In the wake of Brexit, there are a lot of uncertainties in the forex sector, but British and European regulatory bodies are working closely to solve all these problems in order to ensure a stable financial market.

TAGS: FCA  ESMA  product intervention measures  leverage cap  UK  Brexit 
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