London Post-Brexit FX Hub Status Irreplaceable
(15 January 2021 – United Kingdom) Although Britain and the European Union (EU) managed to settle on a deal after many years of protracted negotiations, financial services remains an unpleasant afterthought in final deliberations.
The United Kingdom’s departure from the EU’s now 27 country bloc has ceased ‘passporting’ of licenses to London headquartered FX providers servicing European clients. The long transition of the UK’s exit has allowed FX providers more than enough time to prepare for the transition of their operations. The uncertainty of a no-deal Brexit, what has occurred in banking, has already negatively impacted the industry.
Overall, Brexit has hindered London’s dominance as the preeminent financial services hub and first choice of FX brokers Entering European markets but it is impossible to extinguish entirely. The UK government is now urgently working to close a deal with its EU counterpart by the end of Q1 2021 on financial services. Though many European cities are luring FX providers, it will be next to impossible to replace London given the city is not only a European FX hub but a global hub.
“London isn’t just a European hub, it is the world’s hub for FX. Brokers have to balance the client base they are targeting versus the operational and legal costs to operate in that region” stated Devexperts VP of Trading Solutions, Jon Light.
“For the bigger brokers, this will be just another part of their business they need to manage, for others this will be a cost that doesn’t make sense likely leading to a smaller number of bigger brokers operating across the whole region, and a larger number of smaller brokers with a specific focus” Light commented.
“At an institutional level firms have their people, networks, and systems in London, which are all interconnected with each other. You can’t just pick it up and move it without a series of problems including access to liquidity, latency, infrastructure, a trusted legal framework and access to experienced resources”
“Towards the end of 2020, you saw a lot of brokers initiating their contingency plans, opening operations and getting licenses across many different countries in the EU to enable them to continue to operate and serve those clients, but it’s unlikely you will see a mass exodus of brokers leaving London as it still remains an attractive place to be and an important license to have” Mr Light added.