Foreign Exchange Regulatory Agency Policies - The Australian Securities and Investments Commission (ASIC)

Since 2021, foreign exchange regulators, led by the Australian Securities and Investments Commission (ASIC), have issued a series of new policies. The main policies include limiting leverage, prohibiting binary options trading, increasing the minimum capital requirements of relevant companies or institutions. Behind these policies, it is not difficult to find a significant signal that supervision is tightening. The purpose is obvious, which is to protect investors' rights and improve the industry's resilience.

Source: https://asic.gov.au/

Let's review the regulatory policies that ASIC took effect in the first half of 2021.

1. The ASIC product intervention order came into effect, and the trading leverage was reduced to 30 times! 

The Australian Securities and Investments Commission (ASIC) issued a product intervention order on October 23, 2020, imposing restrictions on the issuance and distribution of contracts for difference (CFDs) to retail clients. The new product intervention order came into effect on March 29, 2021

The order aims to impose leverage restrictions and negative balance protection, whilst standardizing margin close-out arrangements and prohibiting inducements in the sale of CFDs. Among them, the trading leverage limit for CFDs ranges from 30:1 to 2:1, depending on the underlying asset class.

2. ASIC bans retail binary options in Australia

ASIC has made a product intervention order banning the issue and distribution of binary options to retail clients.

The ban took effect from Monday 3 May 2021 after ASIC found that binary options have resulted in and are likely to result in significant detriment to retail clients.

ASIC reviews in 2017 and 2019 found that approximately 80% of retail clients lost money trading binary options. ASIC found that binary options are likely to result in cumulative losses to retail clients over time because of their product characteristics.

3. ASIC increases the minimum capital requirement for securities market participants

The Australian Securities and Investments Commission (ASIC) announced new market integrity rules for capital providing important protections for investors and the integrity of the market, whilst simplifying the capital framework for market participants on June 16, 2021. 

The main capital rule changes are the following:

Market participants in futures markets are required to "comply with a risk-based capital regime instead of a net tangible asset requirement"; and must hold core capital of at least $1,000,000 at all times"; Also it raised the minimum core capital requirement for securities market practitioners to US$500,000.

In fact, it is not difficult to see that regulatory tightening is becoming a trend. For ordinary investors, it is a double-edged sword. On one hand, it protects the anti-risk ability of ordinary investors’ funds. On the other hand, high margin requirements have prompted ordinary investors to have no strong funds to participate in foreign exchange trading and have to open accounts under offshore supervision instead.

However, even with offshore supervision, we still don't know how the regulatory policy will change in the future.

In May 2020, the Securities Commission of The Bahamas(SCB), an offshore regulator, issued a series of new regulatory regulations. According to the new regulations, from May 23, 2021, SCB's CFD rules changed:

1. Implemented leverage restrictions of 200:1 for retail clients

2. Brokers must ensure a retail client account’s net equity does not fall below 50 percent, and the margin is not less than 0.5%

3. Require negative balance protection for retail accounts;

4. Prohibits brokers from offering incentives such as bonuses for marketing CFDs

5. Ban binary options trading

In recent years, with the awakening of the government and the public's awareness of risks, more and more offshore regulations have begun to try reforms. The move by the Securities Commission of the Bahamas could be seen as a sign of bringing the regulatory standards of Europe and the United States into line, and The SCB is also a bellwether of this reform tide.

Regardless of how future trends change, protecting your own funds is always the top priority of trading. Therefore, it is most important for investors to always be very vigilant when choosing a broker.