Will the FCA Follow the UKGC and Ban Credit Cards for Retail FX and CFD?

There’s a big change taking place in the forex arena in the United Kingdom, and it’s causing a stir worldwide. It all started when the UK Gambling Commission (UKGC,) in an attempt to tone down the levels of excessive gambling, announced that starting the middle of April 2020, clients (in Britain) of gaming websites will no longer be able to use credit cards to fund their bets. While the gambling sector is its own separate entity, it is still linked with the British retail forex and contracts for difference (CFD) trading sectors. This may be a case of causation/correlation because as a result, there is much speculation that the Financial Conduct Authority (FCA) might follow suit and ban the usage of credit cards for retail forex and CFD.

A Changing Regulatory Environment

This latest proposed change comes off the back of a wave of regulatory changes in the global retail derivatives sector over the last couple of years. Regulation in the retail Forex space in the United States has been conservative for a long time and jurisdictions in Europe and Australia seem to now be following suit. For instance, ESMA imposed leverage bans on retail traders in 2018, bringing them in line with US standards. Australian regulator ASIC has also recently announced similar proposed changes.

Is This Change Positive?

Experts and analysts that support this trader credit card ban feel its probably overdue. Too many retail investors rely on their credit cards to make deposits in their forex and CFD accounts. Compare Forex Brokers founder, Justin Grossbard, maintains that this new ban will go one step further than leverage caps in easing the burden on traders should markets move against them. “Stopping retail traders from financing debt with more debt will only serve to protect their interests but the use credit cards is modest compare to other funding methods.”

Not Set in Stone- Yet

Concerned traders in Britain must keep in mind that at this point, it is all still talk, and nothing has been set in stone at this point. Afterall, the FCA has placed more focus on the mini-bond sector, following the London Capital & Finance mini-bond scandal. Additionally, Andrew Bailey is going to become the governor of the Bank of England in March 2020, which will play a direct role in how the new Chief Executive of the FCA will impact the retail FX and CFD sectors in Britain. This brings about the question- even if this change were to take place, who would make the first move?

There presently aren’t any indications of credit card companies independently making any changes without the involvement of the FCA or any other regulatory necessity. For what it is worth though, alternative payments are an industry of their own, thanks to the gaming sector. With alternate payments in place, the effects from changes will be significantly reduced.

The last big 2018 ESMA shake up resulted in many brokers diversifying their product offering and instigated an offshore migration of clients in an effort to help them steer clear of regulatory restrictions. A high number of brokers, particularly those heavily reliant on retail traders went out of business to due to the regulatory changes.

All Types of Viewpoints

There are many schools of thought here as to whether this is a change that should be welcome. On one hand, individuals deserve the right to invest as they please without big brother watching. However, it’s also not advisable for traders, especially novices, to get carried away trading on borrowed money, which has to be paid back monthly. It all comes down to self-discipline on an individual level.

Justin Grossbard is Co-Founder of Compare Forex Brokers. A website that helps simplify the broker selection process for traders.