After another Brexit delay, several investors have started questioning whether the United Kingdom will be able to maintain its dominance in the financial markets particularly for FX brokers. The periods when there are active discussions on Brexit, the GBP tends to be extremely volatile, but previous in-between negotiations tend to be the same old stable exchange rate.
This brings an unprecedented conclusion that the UK will most likely not lose its Financial capital title after Brexit no matter how harsh it may be. The only real issue that the country may face is the failure to negotiate a comprehensive regulatory agreement with the European Union. Should London-based companies lose access to their EU investors, it will be a snatch and grab to who can find their next destination faster.
Almost 50 large banks have already drawn up plans on leaving the country and finding a place in cities like Paris, Amsterdam, and Frankfurt. Although this will ultimately cost the UK quite a lot of jobs, it doesn’t necessarily mean that its FX rankings are going to falter compared to any other country.
You see, the UK is known for its pre-disposition on speculating on currencies rather than anything else. Sure there’s Wall Street, the Tokyo Exchange, Singapore Exchange and etc, but it’s important to note that we are talking about currencies here. The firms located in London have already struck deals with the local government which makes it almost impossible to relocate into a better jurisdiction.
But why exactly? Why is the United Kingdom so in-demand for FX brokers and institutional traders? Well, there’s a reason for everything.
Unique regulations for FX brokers
The United Kingdom is a great destination simply because it has the flexibility for unique regulations. For example, whenever the EU makes some kind of amendment to its financial regulations, almost every single member state is supposed to adopt those changes. The United Kingdom has been relatively free in this case as it can change the regulatory amendments according to their local realities and tailoring it to their investor base.
For example, let’s take the time when ESMA (European Securities and Markets Authority) wanted to place a ban on trader benefits. Things such as deposit or no deposit bonuses which are very useful tools for beginners.
The UK stood firm in this case knowing full well that local FX brokers required a fresh new source of investors as investment culture was slowly dying out in the younger generation. Offering something for free was the perfect way to get a new customer accommodated in a new environment.
Things such as XM bonus no deposit required traders to identify themselves as beginners to receive the benefit, and the ESMA regulation would take away that feature, thus limiting a beginner investor’s opportunity to work on their portfolio. Furthermore, it was endangering the investors even further by making them deposit more of their own money on risky speculative ventures, thus creating a much larger net-loss in total.
Fortunately, the FCA saw through this issue and managed to keep the broker benefits within the ramification of regulation, but had to concede on restrictions for CFDs and various other assets.
Pre-Brexit regulatory negotiations
Another good news is that the FCA is conducting negotiations around the clock. Agreeing with financial regulators of the member states seems to be a lot more beneficial than talking to the EU directly. It’s likely that the following agreements are going to be more country-specific rather than region-specific.
All of this can help the UK remain as the capital of finance, but in terms of trade and commerce, it’s up to the government to strike a deal with the EU rather than individual member states.