Will FCA Ban Credit Card Use for Retail FX & CFD Traders?

A new development in the United Kingdom’s gambling industry could also lead to some big changes in the foreign exchange (Forex ) space.

Recently, the UK Gambling Commission (UKGC) said that as of the 14th of April, people would be banned from using credit cards to place bets in Britain, in an attempt to curb problem gambling.

Although this was a development in the gambling sector, the UK’s retail forex and contracts for difference (CFD) trading sectors are linked, which has led to some people within the industry including former GKFX CEO, Rod Martenstyn, forecasting that the Financial Conduct Authority (FCA) might soon do the same.

Debt shouldn’t be creating more debt

In fact, people such as Martenstyn are surprised that the British regulator hasn’t already imposed restrictions on credit cards already, as “Debt shouldn’t be creating more debt for the retail consumer.”

So when could we expect these changes to come into play? Well, according to Martenstyn, the CEO & Founder at OSS Consult Ltd: "It would not surprise me if such a ban was imposed within the next 12 months, but there again, the FCA has been publicly slammed and hurt as a result of the London Capital & Finance mini-bond scandal, and has focussed more on the mini-bond sector in the last year, plus it remains to be seen how the approach of the new Chief Executive of the FCA will impact the retail fx/cfd sector in the UK, once the current incumbent, Andrew Bailey, moves on to his new role as governor of the Bank of England in March 2020."

Will credit card companies take the first step?

However, when asked the same question, Nicc Lewis, the CEO and Founder of Expozive, stated: "Right now there are no indications that similar restrictions on credit card Payments may be applied by the FCA. There has not been the same level of coverage or political grandstanding on Financial Trading as there has been with gambling. If this changes then I believe the FCA may follow suit."

"There is a second question, which is whether the credit card companies may decide to restrict transactions regardless of any regulatory requirement. Again there is no indication yet this will happen Even if it does, gaming has already built enough of alternative payments industry to reduce the effects should this occur."

In 2018 the retail FX and CFD industry changed dramatically when the European Securities and Markets Authority (ESMA) implemented its temporary product intervention measures on CFDs in August, which have now become permanent.

This regulation had a huge impact on the retail trading sector - lower volumes, brokers going out business, many of those who have remained have needed to diversify their product offering and an offshore migration to avoid the regulatory restrictions.

Is further FCA intervention necessary?

Further restrictions such as banning credit cards could also have a large impact on the industry, as it would likely drive away even more retail investors, resulting in lower volumes and, therefore, lowing trading revenues on brokers who are already struggling in the new regulatory environment.

When asked if this type of regulation is needed for the retail trading industry, Martenstyn said that in his own view, people should only be able to gamble/trade with what they can directly afford to lose. If they don’t have the money to gamble/trade without taking a loan out to do so, then they shouldn’t be trading/gambling.

When asked whether the regulations implemented by ESMA in 2018 were enough, Martenstyn replied: "In answer to the first part of your question, not really, some of the measures were not thoroughly thought out, and just opened up methods of circumvention (which the sector did state in their consultative feedback to ESMA and national regulators that could be the case, all of which was dismissed)- whether that be firms taking steps to re-categorise retail clients as professional clients, opening up offshore entities with ‘lighter’ regulation or moving clients to group overseas regulated entities, or the issuing of products such as turbos."

The trading sector needs to come together

If the trading sector wants to avoid potential credit card regulation coming into place, Lewis suggests that the industry needs to come together: "One of the biggest shortcomings of the gaming industry was (and is) a failure to come together as a single voice to negotiate and advise on a governmental level. Back in November, I was a summit of Gaming Leaders. The Gaming Commission had already issued warnings that it was about to pass a raft of new restrictions and had given an open call for the Gaming Industry to come to the table or they would make decisions unilaterally. History has now shown that they could not."

"The Financial Trading sector needs to learn from this as a matter of urgency and set up a council of leaders that can negotiate and advise on a governmental and regulatory level. If not we could see unilateral decisions being made in the future for Finance too. The second lesson to be learned from Gaming is that Financial Trading industry needs to be seen to be responsible and promoting consumer protection, as this will fend off the eyes of the public, the press and the regulator."