Are New ESMA Regulations an Unnecessary Addition to FinTech Industry?

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With the countdown towards Brexit officially crossing the 12-month milestone on March 29, 2018, businesses in the UK are starting to get a picture of what life will be like in a post-EU world. For those involved in the online trading sector, a recent ruling by the European Securities and Markets Authority (ESMA) will impact the way spread betting now takes place online. In a bid to protect consumers, the European regulator has insisted on a reduction in leverage for traders:

 

  • Leverage on major currency pairs will be limited to 30X an investor’s stake.
  • Leverage on non-major currencies, gold and major stock market indices will be limited to 20X an investor’s stake.
  • Leverage on other commodities and non-major indices will be limited to 10X an investor’s stake.
  • Leverage on individual stocks will be limited to 5X an investor’s stake.
  • Leverage on cryptocurrencies will be limited to 2X an investor’s stake.

Modern Technology Taking Care of Customers

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In addition to the above rules first proposed in December 2017, trades will be automatically close when a CFDs losses equate to half of an investor’s margin. The rules will come into force in late 2018, which would suggest UK platforms could avoid the regulations once Brexit completes in 2019. As it stands, UK platforms currently offering online FX betting have a number of provisions in place to protect customers. As well as providing access to 15,000+ markets, customers can use “stops” to manage their portfolio.

Using advanced algorithms, online brokers allow customers to set their own profit and loss limits. After automatically detecting when a limit has been reached, the software will close a trade. These sorts of provisions are one of the reasons online trading has become popular with novice investors. In addition to smart algorithms, online platforms also offer video seminars, market updates and trading signals. The end result is to provide customers with as much information as possible so they have every chance to make smart investments.

 

Conflicting Opinions on ESMA Regulations

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However, in a bid to augment the technology currently in place, ESMA wants operators to take more steps to protect customers. Looking forward to life beyond Brexit, UK customers will trade under the same conditions as their EU counterparts. As ESMA confirmed its plan to implement new rules on March 27, the Financial Conduct Authority (FCA) stated that it will be consulting on whether to implement them permanently in the future.

In spite of the new regulations, the industry and its largest companies have shown themselves to be responsible operators. By utilizing the latest technology, online platforms are able to stop underage operators at the point of signing up, vet all transactions and, as shown, provide a variety of tools to help a trader mitigate any potential risks. Although the EU regulations may bolster these provisions, many in the industry would argue that technology is already taking care of any problems. Conflicting opinions aside, it would seem that the landscape post-Brexit will look similar to what it would have done if the UK remained a part of the UK.

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