Australia's Securities and Investments Commission (ASIC) announced on October 12 that it wants to extend existing leverage restrictions to crypto-settled derivatives, closing a regulatory gap that allows economically similar products to face different rules.
The proposal follows ASIC's finding that 68% of retail CFD clients lost money during the 2023–24 financial year, with combined losses exceeding A$458 million ($325 million), including A$73 million in fees across all asset classes.
Current Regulatory Framework and Proposed Changes
Under ASIC's existing framework, contracts-for-difference (CFDs) settled in cash or through offsetting obligations between counterparties are subject to leverage restrictions. However, derivatives with similar characteristics that settle through digital asset transfers can currently fall outside these protections.
ASIC proposes eliminating that distinction by extending restrictions to all qualifying digitally settled contracts, regardless of their underlying exposure—whether cryptocurrencies, traditional assets, interest rates, or market indices.
For cryptocurrency CFDs, the current maximum retail leverage is 2:1, requiring investors to provide at least half their position value as initial margin. Other contracts face different limits, ranging from 5:1 for shares to 30:1 for major currency pairs.
Impact of Existing Protections
ASIC Commissioner Alan Kirkland noted that existing restrictions have materially reduced investor harm. During the first six months after the protections took effect in March 2021, aggregate quarterly retail losses declined 91%, from A$372 million to A$33 million. The regulator also recorded an 87% reduction in quarterly margin close-outs.
Additional Regulatory Measures
ASIC's proposal includes several additional protections:
- Tightening margin calculations by requiring brokers to calculate initial margin separately for each CFD, preventing offsetting of opposing positions to reduce collateral requirements
- Clarifying margin requirements for CFDs linked to options, where 85% of retail clients lost money during 2023–24
- Strengthening conditions for promotional discounts, requiring offers to be available on substantially equal terms and prominently displayed
- Requiring firms to retain records of qualifying discounts for seven years
ASIC's investigation into margin-netting practices led 28 issuers to refund more than A$36 million to affected retail customers.
Extension and Consultation Timeline
ASIC seeks to extend its existing investor protections for another decade until 2037, subject to government approval. The current intervention order expires on May 23, 2027.
The regulator is seeking public submissions by November 9 from brokers, trading platforms, and consumer groups, including information about affected products, expected compliance costs, and whether firms would need transition periods. Industry feedback could change the final scope of the amendments.
