Brokers which are regulated both in the European Union and in Australia are capitalizing on their diversified license exposure. With looming new European regulations, the firms which are (Australian Securities and Investments Commission) licenses are using a regulatory loophole to honour customer requests to trade with higher leverage.
Earlier this spring, the European Securities Markets Authority (ESMA) published an updated for retail brokers that closed the doors for clients willing to use leverage above 1:30. The news prompted an outcry on part of the industry and some traders which are used to use higher leverage in order to maintain adequate exposure to the market.
While EU-regulated brokers are looking for ways to divest their exposure to the new regulations, companies which are holding an Australian license are already taking action to accommodate client requests.
Key Compliance Details
From a compliance perspective it is not very difficult for companies to be able to move their EU clients to Australia. There is one approach which could yield a result which is detrimental to the brokerage and that is if the broker proactively solicits clients to switch their regulatory jurisdiction.
The existing regulatory framework in the EU doesn’t prohibit clients from choosing to work with a brokerage subsidiary which is located outside of the EU, but the company can not direct clients to move their accounts.
While the ESMA is limiting some aspects of a broker’s operation, other concerns have topped the list of concerns for .
Client Interest to Move Outside of the EU
From the short survey that we made amongst brokers, their clients are very keen to move away from the EU in order to use higher leverage. Several companies have been experience a wave of customer requests to make the transition.
While Australia and the EU are cooperating closely in order to synchronise their regulatory frameworks on an institutional level, the retail market is not being treated in the same way, at least for now. European brokers are thoroughly looking into ways that allow them to meet their clients’ needs and this is just one of the solutions that are being contemplated.
ASIC Protections
One big misconception about an ASIC license is that consumers outside of Australia are well protected. In fact the regulatory framework under which Australian brokers are operating applies only to their clients which are residents of the country.
Numerous brokers are utilising their Australian licenses to accommodate traders from all over the world, and particularly in the Far East. While the ASIC-regulated subsidiaries might choose to be adhering to the regulatory framework for all of its clients, clients outside of Australia have no one to complain to provided that a dispute with the broker arises.
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