MiFID equivalence after UK’s exit from EU: Ireland is a poor relation, mainland Europe is worse – but ultimately who cares?

As LMAX looks toward adopting Irish regulation in addition to its FCA license if a single market EU agreement doesn’t materialize, we dissect why any move by any firm to mainland Europe would be the absolute wrong decision. British companies can expect everyone, everywhere to come to them in droves and moving to the EU would quash that opportunity.


Once again, minor clamor has begun with regard to FX companies in London maintaining their access to a unified European market once the United Kingdom completes its exit from the European Union.

Admittedly a very minor clamor, one that represents a very small drop in the largest ocean in existence, there has been some discussion with regard to establishing operations in European Union member states should the British government not be able to agree a completely unified and aligned regulatory and business structure with Europe.

For anyone with a sound economic mind, any alignment of London with Europe should be enough to ring alarm bells, and a severance as wide as the English channel should be a very welcome occurrence for many reasons beginning with Britain’s world-leading prowess as a financial center – it dwarfs every country, everywhere in the world for technological advancement, market infrastructure, highly experienced industry leading talent who are networked with the very top level professionals from Tier 1 banks across the entire industry spectrum, compared to Europe’s inert, faltering, socialist economy which has as much in common with the financial markets sector as the Atacama desert does with icebergs.

Today, LMAX Exchange, London’s highly innovative multilateral trading facility (MTF) for FX has made its perspective clear in that it plans to make an application for additional regulation in Ireland unless the British government preserves the EU single market passporting rights for the financial services industry.

Ireland? A nation which from 1923 until 1999 intentionally maintained an agrarian economy in order to prevent it from advancing in the way London did during the same period, thus ensuring poverty all round and marking it out as one of the only nations in the world where more of its indigenous population live outside it than in their own land.

Ireland became one of the world’s fastest growing economies by the late 1990s in what was known as the Celtic Tiger period, which lasted until the global Financial crisis of 2007–08. This was not fueled by financial markets growth, or technological prowess, or any form of domestic ingenuity, but instead by the adoption of the Euro which suddenly turned peasant farmers into ‘property developers’.

Hundreds of luxury apartments and office buildings sprung up across the country, all funded by EU initiative instead of sustainable business. The money ran out in 2008 when the banks stopped financing the various white elephant projects that had been constructed with no industry to support them, and Ireland collapsed.

There is no hierarchy of highly experienced industry professionals in Ireland. There is no infrastructure. It is still an agrarian country with a few new apartment and office complexes that spent a long period of time uninhabited, a reminder to allcomers of the unemployment rate which rose to 15.1% in 2012.

London by comparison is quite the opposite.

LMAX, in its rationale for considering adopting Irish regulation, does indeed highlight this matter quite accurately.

The company quite correctly states that the UK is the world’s FX center, twice the size of the US market, and accounts for over 40% of the $5 trillion per day global FX industry.

LMAX considers the United Kingdom to be the backbone of global trade, which is quite correct indeed, however the firm believes that that the FX market in London depends on regulatory equivalence with the EU.

Does it really?

Ireland may well be a no man’s land in terms of productivity and even less of a home to global electronic financial services firms, however even Ireland has more relevance than other EU nations such as France, Italy, Spain, Portugal, Belgium – a country in which all OTC derivatives are banned – and even, believe it or not, Germany.

The Southern European nations all put together contribute nothing whatsoever to the global financial markets economy. When was the last time any senior executive at an institutional or retail FX firm concentrated even a modicum of effort on Italy, Spain or Portugal? Old fashioned nations with low productivity and no dynamism.

Germany is often lauded as the most advanced of Europe’s nations economically and commercially, but it still cannot hold a candle to London, and lags behind Australia, Japan, China, Singapore, Hong Kong and certain parts of the Middle East for modern business.

Germany’s main bank, Deutsche Bank, is on the brink of collapse, its domestic market retail and commercial business on its knees. Deutsche Bank’s FX business – based in London – reduced from its standing as the second largest interbank FX dealer in the world with 14.54% of global market share in 2014 down to 7.4% by 2015, conducting its liquidity provision from its London operations. Germany, a nation steeped in socialism and legacy industry, is therefore even irrelevant to its largest national bank.

Germany lauds Berlin as a startup center of modern thought leadership. England lauds London as the world center of financial and technological development from institutional level, with inhouse banking platforms, right down to the Silicon Roundabout developers of tomorrow’s ecosystem.

Berlin is inhabited by artists, hippies, poets whose beards grow at a faster rate than the developments that they can (or in most cases cannot) come up with, whereas London’s multi-generational thought leadership powers the entire world. London is suits and plate glass superiority, whereas Berlin is graffiti and self-obsession.

London is internships at Barclays, JPMorgan, Currenex, or ICAP, followed by infrastructure architecture projects with budgets of several million pounds, before becoming a highly experienced global senior executive at 35, whereas Berlin is “hey, peace out, man.”

If Deutsche Bank pulled its FX division out of London, the German government would be exposed to the entire bank’s unsustainable commercial debt – just one office in London, even with half of the FX volume of 2014, propped up the entire company globally during 2015 – and it would sink., leaving Wolfgang Schaueble, who has been urging everyone to look the other way and ignore the impending disaster, to write a check for 41 billion Euros to settle its derivatives exposure. Or is that 46 billion? Approximate reporting exemplified…. Ah well, it’s the government’s problem, isn’t it?

Add to this the bureaucracy concerned in registering an FX firm with BaFIN, which is not geared up for modern financial markets in the way that the NFA, CFTC, ASIC and FCA are, and the reasons for going into the mainland European nations can be considered null and void.

FinanceFeeds recently spoke to Lior Shmuely, CEO of Archer Consultants, which specializes in regulatory consultancy for FX firms. When asked if any of the large spread betting and CFD companies from the UK would potentially open regulated offices in the European nations in which they have the largest non-UK client base, Mr. Shmuely said “Absolutely nobody will go to Germany. It is too expensive and too difficult. Even the largest companies in this industry avoid applying for a German banking license.”

He concluded “Cyprus, Malta and Bulgaria are all options, due to their being a quick and comfortable MiFID solution that covers all European Union jurisdictions, however I do not think it will come to that.”

He is right.

London has another reason not to bother with the European Union, aside from the difference in business ideology and lack of commercial infrastructure that suits this industry, that being the lack of customers.

There are no institutional customers in the vast majority of mainland Europe, whereas Asia, the Middle East, North America, Australia and the UK are full of them. The only exception to this is Cyprus, but Cyprus is home to companies which do their business all over the world, with very little business in Europe.

If anything, the very few firms that operate in Europe look toward London for their institutional partnerships, therefore would potentially exercise a ‘Brentry’ rather than a ‘Brexit’, in securing a London base so that they can benefit from top quality partnerships with Tier 1 banks, institutional liquidity providers and vendors, yet not be constrained by the European Union’s inflexible trade agreements and tiny customer base, instead opening themselves up not only to being able to join the heavyweights of London, but to work closely alongside Asian, North American and Australian partners that are far more advanced, and are in the heart of the world’s financial markets centers, have astute populations rather than dependent ones, and total alignment.

David Mercer, CEO of LMAX stated “David Mercer, chief executive of LMAX Exchange, said, “The net effect to the economy could be severe with new foreign investment into financial services choosing the EU over the UK, and existing investment and jobs leaving the UK in short order. Furthermore, lost capital markets revenue and associated taxation income could be catastrophic for the UK.”

Mr. Mercer correctly stated that “We passionately believe the UK can remain the global hub of capital markets due to geography, history, regulatory framework, existing infrastructure and a highly skilled multi-disciplined workforce but sadly this will not be enough if regulatory equivalence is not maintained.”

“It is clear that our European counterparts are opportunistically targeting the current UK capital markets franchise and it is vital we proactively address the regulatory passport issue immediately. We urge the government to make this top of their agenda as they consider the timeline to an exit from the single market and provide guidance to our industry as soon as is practicable” concluded Mr. Mercer, with the company stating that if no agreement is reached, LMAX will commence regulatory filings in January 2017, this being an perhaps unnecessarily pessimistic view when actually LMAX’s London base, fantastic technology and execution method would be welcomed worldwide from its London base, freed from the shackles of the EU.

A Singaporean or Japanese CEO may have difficulty pointing at Ireland on a map, and would for certain not be able to name one successful financial or technology firm from Ireland, nor point at any significant steps Ireland has made to advance the cause of the global market structure, whereas London stands out as their absolute favorite Western partner for a litany of reasons. They may also be put off by Europe’s business unfriendly, socialist structure with terrifying statistics, restrictive trade agreements and half a billion people with 0.2% the number of listed technology firms that Britain has with just 65 million people.

In summary, Ireland is English speaking, has commonality in terms of longstanding social relationships with the UK – but it must not be mistaken for a region whose business rationale is aligned with the UK, and quite simply if I was the CEO of an FX firm in Ireland, I would be looking to move it to London, rather than be in the position of a London-based firm moving any of its operations to Ireland.

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