Why robust regulation of retail trading is a competitive advantage
Since the financial crisis, regulation has been debated extensively; as financial markets have become more accessible to retail consumers, protecting them has never been more important. The decision by the Swiss National Bank to remove the cap on euro-Swiss franc in January 2015 caused turmoil in currency markets, and given the impact this had on some retail trading providers, the role of regulation in the FX and CFD industry is firmly back at the top of the agenda.
At GAIN Capital, we view regulation as a competitive advantage, provided it is adopted through a thoughtful process, with the benefit of industry commentary and participation. Strong regulation in the retail trading industry provides the opportunity for brokers to distinguish themselves as safe, reliable and trustworthy.
At the same time, however, the additional burdens presented by increased regulation can bring significant challenges to many brokers. There is the expense and complexity associated with maintaining compliance with the expanding regulatory requirements. Some brokers may find it increasingly difficult to compete with larger, more established firms while also remaining in compliance with regulatory requirements around activities such as customer on-boarding, know your customer, suitability, anti-money laundering, among other areas.
GAIN Capital is no stranger to regulation. Our global footprint means that we are now regulated in seven jurisdictions, while also being registered with the US Securities and Exchange Commission and publicly traded on and regulated by the New York Stock Exchange. Through our recent acquisition of City Index, one of the UK’s leading retail CFD and spread betting firms, we have made a much more significant commitment to operating in the UK market under the watchful eye of the Financial Conduct Authority (FCA). This deal follows our 2013 acquisition of GFT Markets, which also had a significant presence in the UK. As such, as a company we are now strongly invested in how the UK market operates and is regulated.
The key challenge we face as an industry relates to the conduct of individual firms who choose not to fully comply with regulation in an effort to provide themselves with an unfair competitive advantage. This is a lose/lose situation for everyone: for the retail customers who may not be properly vetted and protected; for the other firms that aspire to a higher standard; as well as for the regulators that have the difficult task of ensuring compliance across the industry. It is only through the continued vigilance of regulators that a consistent standard will prevail across all companies. Achieving this will provide retail traders with confidence that, whichever broker they choose, they will receive the same high levels of protection.
To me, it is clear that robust regulatory oversight is a positive and will help to strengthen our industry. We look forward to working closely with the FCA and our other regulators, but they cannot do it alone. As an industry, we need to work collaboratively with our regulators to ensure that a safe, secure and transparent trading environment, with a level playing field across all firms, is provided for all retail customers.