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FCA Raises Government Bond Leverage to 1:301 min read

Based on the guidelines of the European Securities and Markets Authority (ESMA), the Financial Conduct Authority (FCA) in the UK will now allow leverage on government bonds offered by retail traders up to 1:30.

With government bonds, according to ESMA recommendations, brokers are allowed to offer a leverage of no more than 1:5. However, after Brexit FCA, it seems, is trying to develop its own rules.

ESMA responded by stating that “the proposed leverage limit will lead to a deviation from the leverage limits applied by product suppliers, taking into account other national measures”.

“Since cross-border distribution of CFDs is common in this market, and, according to ESMA, (all regulatory authorities) should take measures that are less stringent than ESMA measures, which will allow for higher leverage limits for the new specified asset class. in divergence within the Union and potential regulatory arbitration” – the pan-European regulator also said.

In response, the FCA indicated that it followed ESMA’s proprietary methodology for determining the risk level of government bonds offered to retail investors with higher leverage.

“As ESMA notes, 1:30 does not exceed the highest leverage limit for other asset classes in ESMA dimensions,” the FCA said. “We agree that this mitigates competition among suppliers that are subject to more stringent restrictions on leverage. Since retail consumers are protected under the rules of other national competent authorities (NCAs), we have come to the conclusion that our rules will not affect the markets of other Member States and will not harm their consumers”.

On Monday, the FCA announced that it will adopt permanent rules for trading on Forex, CFD and CFD-like options, which will take effect in a month. The rules are broadly consistent with ESMA guidelines.