Bureaucracy can be regarded as a positive or negative thing, depending on the outcome and length of time that it takes an organization to reach said outcome. In the case of the United States’ financial markets regulatory authorities, it has taken over a year and a half to effect a ban on the funding of retail FX accounts by credit card.
A matter that was first proposed by the National Futures Association (NFA) in the early stages of 2013, The US Commodity Futures Trading Commission (CFTC) has approved the controversial plan by the NFA to ban use of credit cards and related payment methods for funding of retail FX accounts. In an announcement dated December 1, 2014, the NFA unveils the decision by the CFTC, which means that the proposed changed will come into force on January 31, 2015.
The reforms in the funding rules are detailed in an Interpretive Notice by the NFA concerning Compliance Rules 2-4 and 2-36, which demand all Forex Dealer Members (FDMs) and their Associates to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their forex business. The NFA finds that by accepting credit cards as payment methods from their retail clients, FDMs breach these compliance rules.
The main concern is that with credit cards customers are trading using borrowed funds instead of their own. The NFA insists that because of:
the highly volatile nature of the forex and futures markets, the substantial risk of loss, and the possibility that a total loss may occur in a very short period of time, Members should be prohibited from permitting customers to use credit cards to fund forex or futures accounts.
Clearly the United States authorities want to make absolutely sure that they are limiting participation by retail customers in the FX market to those with the actual means to trade, thus eliminating any possibility that those with a tendency toward speculation without the means to speculate are not exposed.
The ban will spread not only to credit cards themselves but also to electronic payment methods that are linked to credit cards like PayPal, if the PayPal account uses a credit card for funding, thus ensuring that the good old fashioned bank transfer is the preferred method of payment, eliminating potential fraudulent activity, as well as encouraging traders who are serious about trading, experienced and are not in it for a quick speculatory flutter, only to attempt a chargeback from a credit card company should things go awry.
Owners of debit card should be calm as the ban will not affect this type of funding means. However, Members should be able to differentiate between a debit card and a credit card transaction.
That the decision by the CFTC has taken such a long time since the first information on the NFA plans to ban credit card funding of retail FX accounts emerged demonstrates the regulatory authority’s absolute wish to consign this method of payment to the history books, having likely closed all loopholes and ensured that full legal ruling has been completed. In the summer of 2014, NFA’s Board agreed with the proposal, leaving it up to the CFTC to make the final call.
The official PR relating to the CFTC decision on the ban is available by clicking here.