UK to Limit Leverage for Retail Crypto CFD’s, Potential Ban in the Works
As per an official document published by the UK’s Financial Conduct Authority (FCA) has revealed that the UK will move to push measures that protect retail investors from magnified losses in a hyper-volatile cryptocurrency market, July 2, 2019.
New Measures to be Enforced
In December 2018, the FCA published a consultation paper proposing how they can reduce risk to the public posed by crypto CFD’s.
The proposed measures in the paper aimed at improving on the poor conduct by UK and European Alliance firms in offering high leverage CFD’s to retail clients. The FCA received 28 responses that included several measures such as limiting leverage, allowing for posting non-cash margins, and posing limits on how much a margin can reduce before a position is liquidated.
The FCA, as part of the UK Cryptoasset Taskforce, will publish a potential ban on the sale of cryptoasset derivatives to retail clients. This move may significantly affect traders in the UK who use leverage trading to magnify their profits.
CFD’s, in general, will be required to lower leverage offered to customers to a maximum between 30:1 or 2:1 depending on the volatility of the underlying asset. A client’s position is to be closed after 50 percent of required margin posted is wiped out. In addition to this, brokers must ensure clients cannot lose more than they have funded their account with and must provide a standardized warning on the percentage of traders that make losses on their platform.
Crackdowns Gain Momentum
Regulators across the globe are taking stringent action on cryptocurrencies and threat they pose to both AML and individual wealth. From the Netherlands to India, there is no dearth of negative action toward the space coming from the top regulators in the world.
Since the announcement of Libra, regulators have upped the stakes and doubled down on making sure cryptoassets don’t gain too much traction. While decentralization is indeed a threat to their authority, it cannot be denied that the space is rife with scams and bad actors. Getting these measures under control should be a priority, but the blame for such incidents doesn’t lie completely on open networks. Most people get caught up in the euphoria of parabolic returns that they throw their sense of logic straight out the window.