Australia moves to close crypto derivatives loophole after retail traders lose A$458 million

Australia's markets regulator proposed extending retail leverage restrictions to crypto-settled derivatives amid mounting losses among investors trading risky financial products.

On Oct. 12, the Australian Securities and Investments Commission (ASIC) announced it wants to expand its existing contracts-for-difference (CFD) rules to cover qualifying derivatives settled through digital assets, closing a regulatory gap that lets economically similar products face different restrictions.

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. The figures cover CFD trading across asset classes, rather than cryptocurrency derivatives alone.

The Australian regulator is also seeking to extend its existing investor protections for another decade, keeping them in force until 2037, subject to government approval.

Under ASIC's existing framework, CFDs are generally covered when transactions are settled in cash or through offsetting obligations between counterparties.

However, some derivatives with similar characteristics can settle through transfers of digital assets, potentially placing them outside the current product intervention order.

ASIC wants to eliminate that distinction by extending the definition to qualifying digitally settled contracts, regardless of whether their underlying exposure is linked to cryptocurrencies, traditional assets, interest rates or market indices.

The change could force affected brokers and derivatives platforms to comply with existing leverage restrictions, standardized margin close-out arrangements, negative balance protections and limits on promotional incentives.

For CFDs referencing cryptocurrencies, the current maximum retail leverage is 2:1, meaning investors must provide at least half the value of their positions as initial margin.

Other contracts face different limits depending on the underlying asset, ranging from 5:1 for shares to 30:1 for major currency pairs.

The proposed expansion would therefore depend on a derivative's underlying exposure and contractual structure, rather than automatically imposing the cryptocurrency leverage cap on every product settled using digital assets.

Some fixed-expiry crypto futures and options would remain outside the framework.

ASIC Commissioner Alan Kirkland said existing restrictions had materially reduced investor harm, particularly by limiting excessive leverage.