Exclusive: VISA’s Unregulated Brokers Crackdown to Cause Pain Offshore

Exclusive: VISA’s Unregulated Brokers Crackdown to Cause Pain Offshore

October 15, 2018

The payment providers industry has been a section of the retail broking space that we have not been very closely focused on. That has changed this year as back in April we reported on the action which MasterCard is taking to limit the operations of unregulated brokers.

At the time we speculated that it was only a matter of time before VISA joined in. On Friday, we confirmed our suspicions and today we can share some more details.

The card providers are actively cracking down on unregulated and unlicensed brokers. Both VISA and MasterCard are deeming brokers which are not licensed in the country where they are operating as gambling providers.

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What does this mean: for starters, the clients can make a chargeback on their payment for up to a year and a half. This is quite the time and any systemic transaction disputes can make it hard for payment processors to provide services to retail brokers.

The Details

After examining VISA’s letter to payment providers we identified some key details to be aware of. First the businesses in question include: binary options and “synonymous products”; rolling spot FX trading; financial spread betting and contracts for difference.

Brokers providing the above-mentioned products are rated equally to providers of betting, lottery ticket providers, casino gaming chips, off-track betting and last but not least, wagers and race tracks.

All of the above must be marked by the payment providers to be marked with a high-risk code. The so called Merchant Category Code (MCC) in this case is 7995. The institutions processing the transaction need to be registered as a high-brand risk acquirer. You can guess how many companies are willing to carry this risk.

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Payment providers are encouraged to conduct an immediate review of any clients offering the said products. The move made by VISA and MasterCard aims to make the transaction processors an effective police over their customers.

“Acquirers are encouraged to investigate binary options, rolling spot forex trading, financial spread betting and contracts for difference merchants that conduct a disproportionate amount of cross-border transactions and immediately terminate any sales into markets where such transactions are prohibited,” VISA’s letter states.

Regulated Brokers Exempt

The brokers which are regulated by the authority in the country where the service is provided are exempt from the above. As we already mentioned, MasterCard’s rules are already in place starting from today. VISA is introducing the same measures on the 1st of December.

On their part, payment processors must apply for and be granted high-brand risk acquiring privileges. This action needs to be undertaken before contracting with any companies classified as high-brand risk.

EU Regulators Ask for Help?

We have no evidence to support the statement which I am going to make below, but the effort seems well coordinated. VISA and Mastercard could have been working in tandem with Google, Facebook and EU authorities to introduce a safety mechanism for the new EU regulatory framework.

Time will tell if the measures are going to be effective. The rise of offshore subsidiaries on part of EU-regulated brokers has been phenomenal. Whether EU authorities will manage to limit deposits to such entities remains to be seen.

For the time being, ESMA’s regulatory framework seems to have been very effective only at one thing. Both brokers and traders are looking for legal alternatives how to trade with high leverage and avoid the cap.

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