ASIC closes crypto derivatives loophole after A$458 million in retail losses

• ASIC proposes expanding leverage caps to crypto derivatives settled through digital asset transfers, currently exempt from restrictions.
• Retail CFD traders lost A$458 million in 2023-24, with 68% of accounts posting losses; 91% of losses reversed within six months of prior rules taking effect in March 2021.
• Consultation closes November 9, 2026; if approved, the extended order would remain in force until 2037, subject to ministerial sign-off.

• A$458M Aggregate retail losses in CFDs over 12 months, 2023-24 financial year
• 91% Decline in quarterly retail losses within six months of March 2021 intervention taking effect
• Nov 9 Deadline for industry submissions on ASIC’s proposed extension and amendments to rules

Australia’s Securities and Investments Commission announced on October 12, 2026, a proposal to extend and amend its contracts-for-difference (CFD) product intervention order, which currently caps retail leverage on crypto derivatives at 2:1 but exempts products settled through digital asset transfers rather than cash. The regulator wants to eliminate that settlement-method loophole by extending its definitions to include “qualifying CFDs settled through the transfer of digital assets,” closing a gap that lets economically identical products face different restrictions depending on how they clear. 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 (USD $325 million), including A$73 million in fees paid to brokers and platforms.

Closing the digital-asset settlement loophole that exempted crypto derivatives

Under ASIC’s existing framework, which took effect on March 29, 2021, contracts-for-difference settled in cash or by offsetting opposing positions between counterparties face strict leverage limits: 2:1 maximum for cryptocurrencies, 5:1 for shares, 20:1 for minor currency pairs and 30:1 for major ones.

However, some derivatives with identical economic characteristics, same underlying asset, same leverage, same counterparty risk, can settle by transferring digital assets instead, potentially placing them outside the current product intervention order.

ASIC’s proposal would eliminate that distinction entirely by redefining CFDs to cover any contract with the same risks, regardless of settlement method or whether the underlying exposure is tied to cryptocurrencies, traditional assets, interest rates or indices.

The change would require affected brokers and derivatives platforms to comply with existing leverage restrictions, standardized margin close-out arrangements at 50% of account balance, negative balance protections preventing losses beyond deposits, and limits on promotional incentives.

Some fixed-expiry crypto futures and certain options structures would remain outside the framework, depending on their contractual design. The regulator is also seeking submissions on whether CFDs over options that expose traders to losses greater than the premium paid should remain available to retail investors at all, citing an 85% retail loss rate on options CFDs during 2023-24.

Margin-netting abuse and the A$36 million refund campaign

ASIC’s proposed amendment would tighten how brokers calculate initial margin requirements, following a sector-wide investigation in January 2026 that identified firms offsetting customers’ opposing trading positions to artificially reduce collateral requirements.

The proposed clarification mandates that brokers calculate the minimum margin separately for each CFD position, preventing one position from being used to reduce the initial collateral required for another. The regulator said its intervention on margin-netting practices led 28 issuers to refund more than A$36 million to affected retail customers, underscoring how widespread the practice had been.

The regulator is also tightening conditions for promotional discounts, requiring permitted offers to be available on substantially equal terms to all retail customers and prominently displayed on brokers’ websites and trading platforms.

Firms must retain records of qualifying discounts for seven years after offers end, while ensuring educational and research tools are not used to encourage prohibited trading activity.

Extension to 2037 conditional on ministerial approval by May 2027 expiry date

The existing CFD product intervention order expires on May 23, 2027. ASIC argues that a further 10-year extension until 2037 would give firms greater regulatory certainty while preserving the regulator’s ability to revoke restrictions earlier if warranted. However, the amendments remain under consultation, and industry feedback could change their final scope.

ASIC is seeking submissions from brokers, trading platforms and consumer groups by 5 p.m. AEDT on November 9, 2026, including information about which digitally settled products would be affected, expected compliance costs and whether firms would need a transition period.

The CCS read. We see the core issue ASIC did not lead on: institutional platforms offering leveraged crypto products to retail clients face a choice between redesigning settlement flows or accepting leverage caps designed to protect retail traders. A 2:1 cap on crypto derivatives would likely compress volumes and spreads on platforms that currently operate outside the framework. The extension requires ministerial approval and industry feedback could yet narrow its scope.

ASIC has set November 9, 2026 (4 weeks from announcement) as the deadline for industry submissions on which digitally settled products would fall under the expanded definition, what compliance costs firms expect and whether a transition period is needed; subject to ministerial approval, the extended order would take effect and remain in force until 2037 unless earlier revoked.

Original reporting: cryptoslate.com