As Brtiain’s anti-Europe stance hots up, would an independent UK benefit London’s FX industry?
Yesterday, two of the most polarizing figures in British politics went head-to-head in a one hour debate on the long-standing subject of whether Britain should retain its status as a member of the European Union (EU), or to go it alone and revert back to being master of its own destiny as an independent nation.
Opinions most certainly vary within the British populace as to whether an exit from the highly expensive and bureaucratic EU would benefit British industry, or detract from it. With London being home to the largest financial center in the world, there is a widely held notion that its institutional banking and electronic trading sector would be largely unaffected either way.
Or would it?
Deputy Prime Minister Nick Clegg engaged in what became a heated one hour discussion with UK Independence Party leader Nigel Farage on the plethora of implications which could occur should the United Kingdom take its independence back, however the entire financial industry in the UK has changed dramatically since the halcyon days of Margaret Thatcher’s Conservative Britain of the 1980s.
Thirty years ago, trading and financial transactions were often conducted manually, and were based on the price of the corporate stock of publicly listed companies, or were futures contracts secured on physical commodities such as crude oil, wheat or gold.
Nowadays, with London’s vast institutional FX center hosting not only large bank-based trading desks but also companies which provide liquidity to broker partners, a move away from the EU could bring about a multi-faceted change to the entire landscape for such firms.
Whilst domestic opinion varies from the extremely pro-EU to highly nationalist within the general UK electorate, companies wishing to do business with UK firms from outside the EU have demonstrated to LeapRate that an advantage would be maintained by remaining in the EU.
George Popescu, CEO of Boston Technologies explained that whilst the actual internal politics of the UK have no real bearing on his business, he elaborated to LeapRate that “I do feel that to compete with the US , the UK would have an advantage being part of the EU, where as if UK was independent it will have no edge over the US in dealing with companies in Europe.”
Certainly large companies such as Barclays, HSBC, LMAX and Sucden Financial which generate huge revenue for the government in terms of corporation tax may find themselves in a juxtaposition whereby the potential reduction in corporation tax which may arise from Britain saving approximately £55 million per day in government funds on membership of the EU,may be outweighed by levies and taxes imposed on trades executed in the UK by European market participants and broker partners which refer business.
It is yet unclear as to the rejection of EU membership would lead Britain’s firms to concentrate on domestic market CFD and spread betting and enlist IBs of that nature, or continue to look toward Europe for a wider client base which is legitimate under European regulation. Last year, IG Group, ETX Capital and AFX Capital, all British firms, added MetaTrader 4 to their offering in order to look toward an international audience. When considering IG Group’s recent volume figures, however, it is clear that the vast majority of its business still comes from Britain rather than mainland Europe.
Whilst to those of a conservative persuasion, the idea of the UK’s financial industry being master of its own destiny once again is a very appetizing one, European companies which rely on trade relationships with British firms and utilize the common jurisdiction are likely to be less enthusiastic. Paul Orford, Business Development Manager at Cyprus-based Prime Broker Top FX voiced his concern to LeapRate that “whilst this debate goes back a long way, it is becoming a very important topic now. I personally think Nigel Farage is mad. The UK needs Europe as not only a trade partner but as a common market place with aligned business principles.”
A CEO of a British FX ancillary technology provider explained today that he views the potential issues from within as they are directly relevant to his business. “Firms will have to deal with multiple regulatory regimes instead of being passported across country boundaries” he stated.
He further asserted to LeapRate that “Britain’s FCA is generally stricter than EU counterparts, a recent example of this being the investigation into the regulation of social trading platforms.”
On this basis, an exit from the EU would eradicate any exposure to the British public of retail firms which do not operate under such a stringent regulatory framework but which can legitimately solicit a British client base.
A positive matter for potential consideration, according to this particular industry executive is “the potential reduction in corporation tax should the UK renounce its EU membership, and that withdrawal from the EU may have an effect on where normal companies decide to base themselves and therefore change the shape of global capital flows.”
In concluding, this particular professional stated that it is worthy of consideration that should the UK retract from the EU, “Will there be a European backlash? For example, Europeans withdrawing capital/investments or themselves from the UK. This would have massive economic implications.”
For the liberatarians among Britain’s financial sector, a welcome relief from the increasingly draconian European stance on high frequency trading and use of algorithms may be possible should the UK regain its national sovereignty and be able to define its own laws without the potentially limiting impositions set to be implemented by the European Parliament. On this particular subject, Britain’s trading desks would be well placed to compete with those of the Asia Pacific region and North America without curtailment from Brussels.
The UK General Election is set to take place on May 7, 2015, prior to which no doubt ex-banker Mr. Farage and Liberal Democrat Mr. Clegg will continue to debate this matter until the British electorate decides to choose independence or the governance of Europe.
For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.