FCA’s new CFD rules might be good news for brokers with agency model

Maria Nikolova

“The new rules will take us back to a time when the market had a rhythm and could be analysed”, says Naomi Ewart-Simcock, Head of Chinese desk at AFX Group.

Back in December 2016, the UK Financial Conduct Authority (FCA) published its proposals for new rules for firms selling ‘contract for difference’ (CFD) products to retail customers in order to improve standards across the sector and ensure consumers are adequately protected. FinanceFeeds keeps exploring the potential consequences of these changes for the industry.

Naomi Ewart-Simcock, Head of Chinese desk at AFX Group in London, has kindly agreed to share her perspective on the topic. Ms Ewart-Simcock is well known for her ability to provide incisive insight into complex topics concerning the Forex industry, especially the Chinese market and Chinese traders. You may recall her contribution to FinanceFeeds’ article about IBs and the prime brokerage choice in China. That is why it comes as little surprise that Ms Ewart-Simcock’s view on the impact of the new FCA rules on the industry is rather original.

She claims that the new rules are good news – at least for STP brokers.

  • Good news for STP brokers
Naomi Ewart-Simcock, Head of Chinese Desk, AFX Group

“The Financial Conduct Authority (FCA) proposed stricter rules for firms selling ‘contract for difference’ (CFD) products to retail customers. Among the new rules, the maximum leverage will be limited by the FCA to no more than 50:1, has sent shockwaves through the sector. However, it might be good news for the brokers with agency model, or those often called STP brokers”, says Ms Ewart-Simcock.

Her words are in tune with her stance expressed in an earlier interview with FinanceFeeds, when she noted the advantages of STP brokers by saying that “companies in Britain with STP-only licences that operate an agency model in terms of execution are ever more desirable”.

Regarding the new CFD rules outlined by the FCA, Ms Ewart-Simcock said “STP brokers openly welcome the changes since they will reduce the operational risks of their running model”.

  • The Black Swan

Concerning the pending leverage restrictions, Ms Ewart-Simcock reminded us of the January 2015 events.

“In January 2015, the black swan event rocked the FX industry exposing FXCM to negative client balances and sending Alpari UK to liquidation over night. Such a volatile event definitely comes with liquidity issues and the leverage offered by the brokers will further thin the liquidity next to zero. Ultimately the biggest victims will be the brokers themselves”, she said.

  • The advantages of new leverage restrictions

Commenting further on the proposed 50x leverage cap, Ms Ewart-Simcock noted the advantages of such restrictions.

“New rules will certainly reduce STP brokers exposure. 50:1 leverage is still high enough to ‘speculate’ the market instead of ‘invest in’ the market”, she said.

“In my opinion, new rules will not only tidy up the mess which was built up by ‘casino banking’, but will also take us back to a time when the market had a rhythm and could be analysed” – Naomi Ewart-Simcock, Head of Chinese desk, AFX Group.

  • Outlook

Commenting on the proposed rules, IG Group and CMC Markets have stressed they are working with regulators in response to the changes envisaged. Apparently, the industry is about to be reshaped.

Ms Ewart-Simcock struck an upbeat note for the future of the UK CFD industry.

“In summary, both STP brokers and the retail traders might end up hand in hand winning out under a healthier environment” – Naomi Ewart-Simcock, Head of Chinese desk, AFX Group.

Read this next

Metaverse Gaming NFT

Astar Network’s ad features 329 top brands to support Web3 in Japan

Blockchain innovation hub Astar Network is making strides in promoting the Web3 adoption worldwide. In yet another milestone, the smart contracts platform has run a national newspaper ad in Japan that set a new global record with participation from 329 blue-chip firms.

Digital Assets

Pyth Network welcomes onchain data from crypto market maker Auros

“By sharing our high-frequency trading data with a truly onchain decentralized network, we aim to foster innovation that will lead to better financial solutions for all participants.”

Digital Assets

Tokeny integrates Ownera to boost liquidity of tokenized assets

“The adoption of FinP2P will result in higher liquidity and better access to capital and assets by providing regulated firms with one secure point of connection to multiple digital asset networks across the globe.”

Digital Assets

BingX launches subsidy vouchers to cover user losses in copy trading

“With the introduction of copy trade subsidy vouchers, new users can easily try out trading strategies without incurring losses.”

Digital Assets

Talos expands sales team: Frank van Zegveld, Matt Houston, Hillary Conley

“The extensive leadership and industry expertise of these new hires will enable us to build long-lasting relationships as we continue to build out our global presence in EMEA and beyond.”

Executive Moves

FX and CFD broker Emporium Capital hires industry veteran Robert Woolfe as COO

His past experience within the FX and CFD industry includes top roles at Capital Index, London Capital Group, GKFX, ETX Capital, and IG.  “I’m delighted to be part of the Emporium Capital team and spearheading the brokerages global expansion plans”, he said about the appointment.

Retail FX

Hantec Markets wins six categories at Global Retail Forex Awards 2022

Hantec Markets has recently rebranded with a new website and a renewed growth strategy that features the #TimeToStrike hashtag to signify a time of renewed growth for the broker.

Industry News

Nexo sued for operating crypto brokerage without license and lying about it

“Nexo violated the law and investors’ trust by falsely claiming that it is a licensed and registered platform. Nexo must stop its unlawful operations and take necessary action to protect its investors.”

Industry News

Apex Group launches EU Taxonomy Solution as part of ESG offering

“Enabling our in-scope clients to demonstrate alignment with the EU Taxonomy is only the beginning – with over twenty green taxonomies in place, in development or under discussion worldwide it is crucial that investors act to understand and report taxonomy alignment data sooner, rather than later.”

<