So many years in a row we keep hearing about an upcoming industry consolidation. The theme started in 2015, when some of the risks of running a retail brokerage became apparent.
At the time the regulatory reshape of the industry was still far away, but experienced industry professionals were starting to see that the business is about to change in a material way.
The advent of the new regulatory framework which was publicized in December 2016 by the FCA was largely met by the industry with denial. While the UK regulator led the effort, industry insiders have been largely dismissive of the prospects for such a radical change to regulations in Europe.
Despite this, the changes became reality and since August 2018, many brokers are starting to realize that the industry is really changing for good.
M&A Spree Incoming
After the first couple of months were viewed as very difficult, the industry adopted a new tactic. Shifting to markets outside of the EU and offshore regulatory jurisdictions was the next logical step.
The mainstays of the industry in the meantime started driving client acquisition costs much higher than any of the small companies could afford. With major firms losing 20% of their revenues in the EU, the majority of smaller firms have lost 50 even 70% of their income.
These numbers have not been officially mentioned, but the rumors circulating across the industry are unforgiving. The status of the industry has changed, focusing on the short term is no longer an option if you are running a regulated company.
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Australia has been a regulatory safe haven, and that saved a lot of companies who have an ASIC license. That said, the period during which the land down under will play this role is limited.
The financial regulatory regimes across the G-20 are frequently synchronized. According to estimates from industry insiders from the region, brokers can expect between 1 and 2 years of leeway. For some companies that is enough, others will end up paying for an expensive license only to find it useless in a little over 12 months.
Industry executives are not shy when speaking about consolidation. It seems that after 3 years of talk that was foreseeing an M&A spree, it is finally coming in 2019.
Retail brokers appear to be ever more dependent on income from outside of Europe and North America.
In the meantime, 2019 might indeed be the year of consolidation. If you’re a buyer, you better keep your eyes open, if you’re planning to exit, be swift and don’t delay further.