Brexit, the news story that never dies, has been capturing headlines more than usual over the past couple of days.
With heroic British prime minister Boris Johnson steering the country towards a ‘no-deal’ exit from the European Union, the globalist, Remainer shills are going into overdrive to try and prevent it from happening.
Alternatively, the brave Remainers are attempting to save the UK from the evil former editor of the Spectator. It’s all just a matter of framing.
Anyway, whether you are opposed to Brexit or support it, the UK’s decision to leave the EU has undoubtedly forced brokers to cough up some large sums of cash.
“This makes no business sense for us”
Several companies that Finance Magnates spoke to estimated that, in terms of real money spent, new hires and man-hours put in, Brexit has cost them hundreds of thousands of dollars.
“We have been putting parallel structures in place and even decided to keep other structures in place just for the sake of Brexit risk, when doing this makes no business sense for us,” said Illimar Mattus, the chief financial officer of Tickmill.
“We’ve had to hire more compliance and back-office people and figure out alternative payment solutions. But if there is a soft Brexit, there was no need to do this. It’s like preparing for a hurricane without knowing if it’s going to hit you.”
No-deal? No problem
Others are more sanguine about the matter. When we spoke to Peter Cruddas last year, for example, he described a no-deal Brexit as “no big deal” for CMC Markets.
“We don’t have to open an EU office because we’ve already got half a dozen anyway,” the CMC CEO said.
“We’d just have to upgrade one of those offices, probably our Frankfurt office, and apply for full European status. There would be some logistical changes but they’ll be minimal – maybe an additional couple of traders on-site.”
For a big firm like CMC, getting additional licensing and hiring a couple of new people may not be a big deal. But the chances are it’s still going to cost a fair amount, something no senior management team is going to be thrilled with.
And for smaller players, spending a few hundred grand – particularly on something you may not even end up using – is hugely problematic.
For brokers that do choose to remain in the UK without any European licensing, one of the key problems will be advertising. No EU license makes it very difficult to market your services to customers active in the bloc.
Of course, most brokers seem to not really care that much about compliance. Thus, it wouldn’t be too surprising to see many UK firms continue to pick up clients across the EU.
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“In practice, brokers will be forbidden from advertising in the EU if the UK leaves with no deal,” said the CEO of one Cypriot brokerage.
“But I am expecting them to ignore the rules and continue doing it anyway. If that’s the case, I don’t know how much impact there will really be on them.”
Our ‘London’ office – gone
Much of the focus of Brexit has been on the impact that no-deal would have on British businesses. But in the retail trading industry, it’s also possible that other firms in Europe will be adversely affected.
London has long been seen as the more ‘respectable’ location for a broker to do business. Whether or not it deserves that accolade, this author can’t say.
But it is undoubtedly the case that many firms have been milking the reputation that an FCA license and London office brings to the table.
“If Brexit happened and we left the EU with or without a deal, at some point the passporting rights that all CFD firms in the EU are currently enjoying will cease to exist,” said Salam Alaswad, a consultant and the former CEO of UK-based CTP Markets.
“Many brokers, who are not authorized by the FCA, are currently taking advantage of the passporting system and using their registration – not authorization – with the FCA as a major selling point. Those firms are going to lose that ability and, as a result, a competitive edge that they’ve had over UK brokers for some time.”
It’s not just brokers based outside of the UK that use FCA authorization as a marketing tactic, who could suffer from Brexit. Finance Magnates understands that some firms, which have FCA and Maltese or Cypriot licenses, are also anxious about what Brexit will bring.
For now, those firms can pass European clients on to their FCA-regulated entity. But if they are unable to do that, they will be forced to onboard them in Cyprus or Malta – something that they fear their clients will be reluctant to do.
“A lot of our end clients have told us that they won’t do business with our Cypriot entity,” said the CEO of one major broker, which also has an FCA license.
“It’s a big enough problem that we are probably going to be getting a new license in another EU country.”
When and how Brexit takes place remains to be seen. But for brokers in the retail trading industry, it’s impact has already been felt.
It’s likely that millions of dollars have now been spent by firms to ensure that they can still provide services to European clients after the UK leaves the EU.
Preparing for a hurricane doesn’t come cheap.