A proposed ban on spread-betting and CFD trading of cryptocurrencies is “unlikely to be material” for leveraged traders IG Group Holdings (LON:IGG), CMC Markets Plc (LON:CMCX) and Plus500 Ltd (LON:PLUS), analysts reckon.
The Financial Conduct Authority have launched a consultation on potentially preventing the sale to UK retail customers of derivatives products referencing any sort of ‘cryptoassets’, with any resulting policy changes scheduled to be issued in early next year.
This followed the European Securities and Markets Authority’s (ESMA) crackdown on leveraged trading for non-professional customers, which began last year.
“The FCA’s rationale is not surprising and continues the general direction of travel the regulator is taking with respect to the treatment of retail customers of financial services businesses,” said broker Shore Capital in a note to clients on Thursday.
The watchdog believes there is no reliable basis for the valuation of cryptoassets, which are extremely volatile, and said market abuse and financial crime is prevalent, not helped by the feeling that they are not properly understood by retail consumers.
But ShoreCap said a crypto clampdown “would have limited impact” on IG and CMC as the cryptoasset asset class “fell significantly out of favour” by the second quarter of last year and “well before” ESMA’s leverage caps came into effect last August.
Around 70% of both IG and CMC’s revenues are generated from elected professional customers as opposed to retail customers, ShoreCap noted, calculating that around £3mln-£4mln, or less than 1%, of IG’s revenues would be at risk, with proportionally even less exposure.
IG revealed a pickup in client activity in May this year, coinciding with an improvement in the value of bitcoin, which ShoreCap noted “may have contributed to some of this increase in client activity”.
Analysts at Liberum, meanwhile, said they had spoken to Plus500’s chief financial officer and “learned that UK crypto CFD revenues were almost nil” in the first half of the year, with retail approximately 55% of that.
Even without the above guidance from Plus500, UK retail is roughly 55% of the 14% of group revenues that come from the UK, with crypto “maybe 10-15%” of that.
“This potential new regulation is however more important in terms of client acquisition,” said Liberum. “In this industry newsflow drives new customers, volatility then drives revenues.
Turbos switched off
In a separate policy statement published on 1 July, the FCA mandated restrictions on the sale of “CFD-like options” to UK retail customers.
These restrictions apply to products like turbos, which IG is looking to launch outside the UK, under the German regulator BaFin as part of its on-exchange MTF offering called Spectrum.
ShoreCap's analysts noted that IG has not communicated any intention to market turbos to UK clients, so again they see limited impact to IG’s business from this separate ruling by the FCA.