Online trading companies trying to present a united front against a regulatory clampdown on customers’ borrowing limits have suffered a blow after Saxo Bank, one of the sector’s largest players, broke ranks and backed the new proposals.
Privately-owned Saxo, which specialises in foreign exchange trading, said on Thursday that it was quitting the trade association for retail online trading companies, CFD & FX Association, over disagreements around how to respond to the FCA’s proposed changes. Members of the group include large spread betters such as IG Group and CMC Markets.
The move by Saxo comes as the Financial Conduct Authority weighs how to crackdown on the sale of so-called contracts for difference bets amid concerns that individual retail clients were losing too much on the products. The watchdog’s sudden announcement last year knocked shares across the industry by around 30 per cent.
Of the proposals, the FCA’s plan to restrict the amount of leverage – borrowed money that increases a client’s stake – has drawn criticism from the industry. But Saxo, one of Denmark’s biggest banks, has come out in favour of caps in a move that fractures efforts by a usually competitive industry to present a united front to regulators.
Kim Fournais, Saxo’s chief executive, said the group did not want to be part of an association “that is really advocating higher leverage” which it deemed “not healthy for clients”. He called on companies in the sector to act differently or risk “damaging the reputation of the industry”.
“We do endorse what the FCA is bringing forward and we don’t want to be in any kind of opposition to regulatory change which we believe to be needed and very prudent,” said Mr Fournaris.
Leverage can be used to multiply wins but can also deepen losses, meaning investors can owe providers more money than originally deposited.
The FCA has proposed setting a limit on this leverage of 25 times for retail investors who have less than 12 months’ active experience in trading CFDs. Leverage for all retail clients would be capped at 50 times, with tougher limits across different assets, according to their risks.
Saxo had already lowered its leverage levels after it came under fire for its behaviour during the 2015 Swiss franc rally when the central bank shocked markets by removing the currency’s de facto peg to the euro.