Brexit Fallout: Ireland’s MiFID Equivalence Takes a Hit, But Does Anyone Really Care

There are renewed calls for London FX firms to maintain their access to the united European market once Brexit is completed.

Admittedly, this is a very small voice, representing a drop of water in the largest ocean in existence, and if the UK government cannot agree a fully unified and consistent regulatory and commercial structure with Europe, then there will be some doubts about the establishment in EU member states. business discussion.

For anyone with a sound economic mind, any alliance between London and Europe would be enough to set off alarm bells, and a severance as wide as the English Channel should be welcomed for a number of reasons, starting with the UK’s status as the world’s leading financial centre. Strengths – The UK dwarfs every country in the world in terms of technological advances, market infrastructure, and experienced industry leaders with industry-wide connections to top professionals in Tier 1 banks; Europe’s socialist economies were lifeless and crumbling, having as much in common with the financial markets sector as the Atacama Desert has with icebergs.

Today, London’s highly innovative foreign exchange multilateral trading facility (MTF) LMAX exchange made it clear that it plans to apply for additional regulation in Ireland unless the UK government retains access to the EU single market for the financial services industry.

Ireland? The country deliberately maintained an agrarian economy from 1923 to 1999 to prevent it from developing like London during the same period, leading to poverty throughout the territory and making it one of the only countries in the world where Aboriginal people live more outside their borders than on home soil. One of the countries where more people live.

In the late 1990s and 2007s, Ireland became one of the fastest-growing economies in the world, a period known as the “Celtic Tiger Period” until the global financial crisis of 2007-08. The driving force of this period was not the growth of financial markets, technological prowess, or any form of domestic innovation, but the adoption of the euro, which suddenly turned farmers into “property developers.”

Hundreds of luxury apartments and office buildings are being built across Ireland, financed by EU initiatives rather than sustainable businesses. In 2008, banks stopped funding all kinds of useless projects with no industry to back them up, money ran out, and Ireland collapsed.

There are no experienced industry professionals in Ireland. There is no infrastructure. It is still an agricultural country, with a few new apartment and office buildings, but long periods of neglect, reminding everyone that the unemployment rate rose to 15.1% in 2012.

In contrast, the situation in London is exactly the opposite.

LMAX does highlight this point quite accurately in its rationale for considering the adoption of Irish regulation.

The company quite rightly points out that the UK is the FX center of the world, twice the size of the US market and accounting for over 5% of the $40 trillion daily global FX industry.

LMAX is rightly right that the UK is the backbone of global trade, but the firm believes London’s FX market relies on regulatory equivalence with the EU.

Really

From a productivity perspective, Ireland is likely to be a no man’s land, let alone home to global electronic financial services companies. However, Ireland is better than other EU countries such as France, Italy, Spain, Portugal, Belgium (one ban on all over-the-counter derivatives) countries with products) and even Germany, are more relevant.

The countries of Southern Europe combined contribute very little to the global financial market economy. When was the last time an executive at an institutional or retail FX firm focused even the slightest bit of attention on Italy, Spain or Portugal? These countries have low productivity and lack vitality.

Germany is often hailed as the most economically and commercially advanced country in Europe, but it still cannot compare with London and lags behind Australia, Japan, China, Singapore, Hong Kong and parts of the Middle East in terms of modern business.

Germany’s major bank, Deutsche Bank, is on the verge of bankruptcy, with its domestic retail and commercial businesses in trouble. Deutsche Bank’s FX business, headquartered in London, fell from its position as the world’s second largest interbank FX dealer (14.54% of global market share) in 2014 to 7.4% in 2015, with its liquidity provision coming from its London operations. As a result, Germany, a socialist and traditional industrial country, has nothing to do with even its largest national bank.

Germany praises Berlin as an entrepreneurial hub for modern thought leadership. The UK praises London as a world center for financial and technology development, from the institutional level (with its in-house banking platform) all the way to Silicon Valley developers of future ecosystems.

Berlin is home to artists, hippies, poets whose beards grow faster than they can (or in most cases can’t) come up with, while London has generations of thought leaders powering the entire world. London is about suits and plate-glass superiority, Berlin is about graffiti and self-obsession.

In London, one interns at Barclays, JP Morgan, Currenex or ICAP, then works on infrastructure projects with multi-million pound budgets, before becoming an experienced global senior executive by the age of 35; in Berlin, one It’s like, “Hey, let’s go, man.”

If Deutsche Bank pulls its FX desk out of London, the German government will be exposed to unsustainable commercial debt risks across the bank – FX trading volumes in one London office alone were half what they were in 2014, but propped up the entire company in 2015 ’s global operations – and Deutsche Bank will be in trouble. And Wolfgang Schaueble, who had to write a check for €4.1 billion to address his derivatives exposure, has been urging everyone not to worry too much about the impending disaster. . Or 4.6 billion euros? The rough report is an example… Well, that’s the government’s problem, isn’t it?

In addition to this, registering a Forex company with BaFIN involves bureaucracy and BaFIN is not as suited to modern financial markets as the NFA, CFTC, ASIC and FCA, so the reasons for entering the continental European country can be considered invalid.

FinanceFeeds recently spoke with Lior Shmuely, CEO of Archer Consultants, which specializes in regulatory advisory services to foreign exchange companies. Asked about the possibility of large UK spread betting and CFD firms opening regulated offices in the European country with the largest non-UK client base, Mr Shmuely said: “Absolutely no one is going to go to Germany. It’s too expensive, too It’s difficult. Even the biggest companies in the industry avoid applying for a German banking license.”

He concluded: “Cyprus, Malta and Bulgaria are all good options as they can offer fast and easy MiFID solutions covering all EU jurisdictions, but I don’t think this will be the case.”

He is right.

In addition to differences in business philosophy and a lack of business infrastructure suitable for the industry, another reason why London does not deal with the EU is the lack of customers.

Most of continental Europe has no institutional clients, while Asia, the Middle East, North America, Australia and the UK have many. The only exception is Cyprus, but Cyprus is home to companies with global operations and little presence in Europe.

In any case, the very few companies operating in Europe will want to establish institutional partnerships in London, so they may take a ‘British’ rather than a ‘Brexit’ approach, establishing a base in London in order to gain a clear link with Tier 1 Banks, institutional liquidity providers and suppliers benefit from high-quality partnerships, but will not be constrained by the EU’s rigid trade agreements and tiny customer base. Instead, they will have the opportunity to not only join London’s heavyweights but It is possible to work closely with partners in Asia, North America and Australia that are more advanced, located in the heart of the world’s financial market centers, with a savvy rather than a dependent population, and are fully aligned.

David Mercer, CEO of LMAX Exchange, said: “New foreign investment entering the financial services sector will choose the EU rather than the UK, while existing investment and jobs will soon leave the UK, which has a net impact on the economy. The impact can be severe. Furthermore, the loss of capital markets income and associated tax revenues could be catastrophic for the UK. “

Mr Mercer rightly stated: “We firmly believe that with its geography, history, regulatory framework, existing infrastructure and highly skilled, multi-disciplinary workforce, the UK can remain at the center of global capital markets. But sadly, if not Maintaining regulatory equivalence is not enough.”

“It is clear that our European counterparts are opportunistically targeting the UK’s current capital markets franchise and we must proactively address the regulatory passport issue immediately. We urge the government to make this a top priority when considering its timetable for exiting the single market, and as soon as possible Provide guidance to our industry,” concluded Mr. Mercer, who stated that if no agreement was reached, LMAX would begin regulatory filings in September 2017, perhaps an unnecessarily pessimistic view given that in reality LMAX’s The London base, superior technology and execution approach will be welcomed around the world, free from the constraints of the EU.

A CEO in Singapore or Japan would probably be hard-pressed to point to Ireland on a map, certainly not be able to name a single successful financial or technology company in Ireland, nor be able to point to any major initiatives taken by Ireland to further the cause of global market structures, while London has become their absolute favorite Western partner for a host of reasons. They may also be disillusioned with Europe’s business-unfriendly socialist structures, dire statistics, restrictive trade agreements and the fact that the number of listed tech companies for a population of only 65 million is only 65% ​​that of the UK, which has a population of only 65 million.

All in all, Ireland is English-speaking and has things in common with the UK in terms of long-term social relationships – but it must not be mistaken for a region whose business philosophy aligns with the UK’s. Quite simply, if I were the CEO of an Irish foreign exchange company, I would consider moving it to London rather than moving any of its operations to Ireland as a London-based company would.