LeapRate Exclusive… LeapRate has learned that the Belgium government’s ban on leveraged Forex, CFD and Binary Options trading in order to ‘protect Belgian consumers of financial services’ has effectively backfired.
At least so far.
As reported at LeapRate, Belgium’s financials regulator FSMA announced the ban in mid August, giving brokers serving Belgian customers a few weeks to terminate all contact with them and to refund their money. The FSMA’s action came alongside statements made by senior Belgium government officials such as Minister for Employment, Economy and Consumer Affairs Kris Peeters and Belgium’s Minister of Finance Johan Van Overtveldt, each seeking to take some of the credit for the FSMA’s fairly drastic action.
Belgium neighbour France introduced a ban on advertising leveraged trading products in the country at the beginning of August. However Belgium took things a step further just a couple of weeks later, banning activity altogether. As we reported late last month, Holland is planning to copy the France Forex ad ban, but is not planning to ban the products altogether, a la Belgium. And other EU countries including Germany are looking at similar action, although nothing has been decided as of yet.
While virtually all larger, regulated brokers have indeed taken steps to close all accounts belonging to Belgian retail traders, the void is being filled by smaller, mainly unregulated brokers who sense opportunity.
A LeapRate survey has detected a large increase in ads targeting Belgian traders from both offshore Binary Options brokers and unregulated Forex brokers.
That should really not come as a big surprise. Belgian traders are in the process of receiving fairly large refunds of their customer account equity from regulated brokers, and so the race is on to capture those funds among those brokers who aren’t regulated elsewhere in the EU and which don’t really care about the ban, or about what the Belgian government might do if they are detected.
Belgium has a population of 12 million people and a fairly high GDP per capita of about USD $47,000 – by comparison, about 10% higher than the UK’s $42,000. That makes Belgium a fairly attractive retail trading market, but not the biggest one out there. We estimate the Belgian Forex market at about $16 billion per day or about $350 billion per month – meaning that there are about $500 million of annual revenues to divide among those brokers who can capture those Belgian clients.
The end result, it appears, will be that Belgians will continue to trade Forex, CFDs and binary options products. But they will do so at brokers which don’t (necessarily) segregate client funds and which can basically do anything they want unchecked by regulators. And, like US traders to some degree, Belgian traders will have a lot less choice, limited essentially to ‘renegade’ brokers which aren’t scared off by the ban.
The lesson to be learned here?
The Belgium Government certainly has the best of intentions in trying to protect consumers. However as with many types of government action – especially attempts to exert control on or to totally ban markets – they often backfire and end up causing much more harm than good. And in this case, directly harming those very consumers they were trying to protect.
Online trading isn’t going away. It makes a lot more sense for regulators to try and control and regulate it than ban it altogether. Banning it just takes control out of the regulator’s hands.
Regulator action should be centered around making sure consumers are trading with licensed, well-capitalized, reputable brokers as opposed to taking action (like this one) which just drives traders into the arms of ‘bad’ brokers who answer to no-one.
LeapRate would welcome our readers’ opinions on this matter. Please comment below.