Top financial regulators across the world have been forced to introduce a number of stringent regulations in recent times.
One of the most notable ones is by the European and Securities and Markets Authority (ESMA). The organization placed leverage caps and marketing restrictions on several financial instruments in 2018.
This has scared away quite a few investors into moving out into other regions like Australia.
However, the restrictions seem to be contagious as experts say that the Australian Securities and Investments Commission (ASIC) may soon follow ESMA’s lead.
The original ESMA restrictions were placed for a period of three months but this has been consistently extended for some time now. The new ESMA regulations can be rolled out indefinitely as well as be made permanent. The restrictions have taken their toll on many brokerages in Europe. It has now become more expensive to work with these brokerages and the idea of getting EU financial licenses for most brokerages is becoming less appealing.
Australia is the main beneficiary of this restrictive atmosphere because despite it being a developed market, it does not have the restrictive regulations of Europe. This is especially so when it comes to forex, cryptocurrencies, and contracts-for-difference. However, this may change as ASIC is seeking to become a fair and honest market for retail traders.
The fact that it is less restrictive than Europe does not mean that Australia does not have strict rules in place. For example, traders will need an Australian Financial Services License if they want to trade in the region. This can be costly as well as take a long time. Additionally, there is only a 44 percent success rate when it comes to approvals.
Additionally, many experts think that the rumors of ASIC following ESMA’s regulatory footsteps are true.
In a statement, Paul Derham a Partner at Holley Nethercote Commercial & Financial Services Lawyers, said
I think there is truth in the rumours because ASIC wants to reduce regulatory arbitrage. I think the industry is trying to self-regulate as best it can but whether or not ASIC uses its powers to reduce leverage and impose some of those ESMA-like requirements. No one knows.
However, experts point out that this won’t be happening any time soon as the ESMA and the UK Financial Conduct Authority have not finalized their restrictions yet. Experts think these new restrictions will only happen when the restrictions have fully matured and proven themselves in the market.