Australia Cracks Down on Crypto Derivatives Loophole After Retail Traders Lose A$458 Million

Proposed Expansion of Retail Leverage Restrictions

Australia's markets regulator, ASIC, proposes extending retail leverage restrictions to crypto-settled derivatives to address mounting losses among retail investors. The proposed expansion would 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.

Impact of Existing Restrictions

Existing restrictions have materially reduced investor harm, particularly by limiting excessive leverage. 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.

Proposed Changes

ASIC proposes to extend 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 proposed expansion would require firms to comply with existing leverage restrictions, standardized margin close-out arrangements, negative balance protections and limits on promotional incentives.

Industry Feedback and Next Steps

ASIC is seeking submitters' views on the proposed changes, which are open for consultation until December 2026. The regulator argues that a further 10-year extension would give firms greater regulatory certainty while preserving the regulator's ability to revoke the restrictions earlier.