With ASIC going the way of ESMA do traders actually care about Regulation?

This week ASIC announced the start of a consultation on a product intervention similar to ESMA’s intervention.

This article doesn’t really have a conclusion, but it does have a theme that I have been wondering about for the last 15 years. I would appreciate all retail trader’s views.

In 2008 I ran a retail desk for a spread betting firm in London, a firm authorised by the FCA.  A year earlier MIFID had opened up the European market allowing UK brokers to market CFD’s to Europeans, and European firms to UK clients.

However it was largely one-way traffic.  UK firms such as IG and CMC either teamed up with local IBs, or set up offices directly in various different territories adding blue chip authorisation from Bafin, or the AMF for example, to their regulatory badge roster, and then marketed to Europe as a whole.

Then the Cypriot regulator CYSEC popped into view. None of the established players were there, but a burgeoning scene of FOREX brokers started getting authorisation that allowed them to market across Europe. Despite offering the same protection as any other EU regulatory body – I was adamant that retail clients would dismiss it.

Who wants to send their hard earned money to a small island 2000 miles away?!! No one does I said.  People want a broker with an established and respected regulator I said.

Well I was wrong. Plenty of people were happy to, and now Cyprus hosts 100s of brokers operating internationally facilitating millions of clients.  Cyprus is arguably the centre of the global industry.

Where IG reject 76% of applicants for professional status, 30%  never trade again with IG, presumably to go anywhere off shore to get there leverage fix.

So do clients care, know or want regulation? Do regulators provide any benefit to self-directed traders seeking leverage?

With a number of providers offering deposit Insurance schemes through major insurers, some of the loss of protection offered by a regulator can be mitigated.  It’s interesting that in territories where regulation is unclear such as parts of Asia, the badge of FCA or ASIC is held in great esteem by clients, but anecdotally, when clients are asked to choose a reduced leverage offering to qualify for that protection, it seems keeping your account off shore is preferable.  Indeed simply knowing that your broker operates in territories requiring stringent regulation (other than where your account is held) seems to provide the necessary insurance a client needs.

And then there is Crypto trading whose major tenet for many investors is the very fact that it is not regulated.

Brokerages have adapted to the benefits and drawbacks of globalisation. I wonder whether in 5 years’ time whether we can conclude regulators have too.

You can read the ASIC consultation paper here

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