Fintech company Capital.com is the first CFD trading platform to become fully compliant with the regulations published by the European Security and Markets Authority (ESMA).
ESMA has set out a series of sensible measures designed to protect retail traders from unsustainable or unforeseen risk, which come into effect on 1 August for an initial three-month review period. These measures include negative balance protection to prevent traders losing more money than they invested, the additional protection of an individual trade closeout rule, and stipulated maximum levels of leverage which reflect the volatility of each asset class. In addition, ESMA has mandated that advertising cannot include financial incentives related to the opening of an account, and must feature a specific risk warning which indicates the historic trading success rate.
Ivan Gowan (pictured), CEO at Capital.com, says: “The changes that ESMA proposed, are broadly sensible and were mostly already in place at Capital.com. This reflects our business culture, which has always placed fair client outcomes at its heart. We have had negative balance protection, margin closeout, and responsible marketing as standard since our launch. While our culture guarantees fair client outcomes, we also ensure that we are fully compliant with all relevant regulation, which is why we have taken the decision to reduce the default leverage limits which we offer, rather than waiting until the deadline that ESMA will set out.”
The regulations developed by ESMA stipulate that CFD trading providers must set maximum leverages across different asset classes, from 30:1 for major currency pairs down to as low as 2:1 for cryptocurrencies. Capital.com has implemented these leverage limits as default settings for its users, to ensure compliance with ESMA’s statement and promote responsible trading.
Gowan says: “We are concerned that ESMA has arbitrarily set leverage levels too low. In pursuit of more sensible and pragmatic levels of leverage, clients may be tempted to deal with illegal offshore providers, where protections are either extremely low or non-existent. To minimise this risk initially, we are offering our clients the option to revert to higher leverage levels, until ESMA’s regulations come into force. We already offer users leverage based on their experience level – providing those with less experience lower leverage limits.
“Many unsuspecting consumers are already dealing with offshore providers, some of which are simply sophisticated financial scams. An excessive clampdown on available leverage could increase the number of consumers who fall prey to these operators. We will work with regulators to learn from early experiences once new regulations are implemented, and help adjust the regulations accordingly, to ensure the best outcome for consumers across the EU.”