How Brexit can affect Brokers and Broker Startups
For more than three years, the UK government has been unable to agree with the European Union on the conditions of Brexit. The recently appointed Prime Minister, Boris Johnson, has spoken about his readiness to leave the union without concluding an agreement with Brussels, in the case of the European side’s refusal to overview the terms of the settlement. In this case, the British economy may lose 9.3% of GDP over the next 15 years, according to the November 2018 UK official report.
The financial sector of the country will suffer the most. Global banks and investment companies may withdraw assets amounting to $1 trillion, which represents almost 10% of the entire banking system of the country.
Analysts expect that Brexit will break the current balance and increase the level of uncertainty and speculation in the foreign exchange market. Brokers based in the UK have already begun to activate contingency plans for a no-deal Brexit. Since the referendum on June 23, 2016, many companies have changed their British registration to Irish or German.
As access to the European Union internal market for the UK brokers and the British market for the rest of the EU members may be restricted, analysts advise startups to prepare for reorganization. Forex brokers, operating under a new jurisdiction, must carefully examine the legal and regulatory positions in contracts with clients and outside contractors. One of the leading financial advantages for EU members is passport rights, which will cease in case of no-deal Brexit, and the possibility to join the European Economic Area (EEA).
It will be more difficult for brokers from London to get equal access to the EU market and compete with representatives of Berlin, Paris, Amsterdam, Milan or Madrid. Previously, the UK attracted international financing, having relatively low-cost tariffs and government initiatives, such as subsidised grants. Now, if the UK loses access to the EU single market, the damage to the level of foreign direct investment will be significant. However, analysts suggest the post-Brexit impact will not be that drastic on UK and EU trade relationships, as it might also influence the rest of European businesses.
Some initiatives, introduced by the government, will influence the brokerage industry. For example, the Scottish parliament intends to cover the immigration fees for EU citizens who will continue their work in the public sector of Scotland after Brexit.
Still, a brokerage business will probably have to adapt to the new terms on the territory of the United Kingdom. “This whole industry works on change,” is what Owen Thomas, the former RSA sales and distribution director at Global Risk Solutions, had to say about how Brexit would affect brokers. The official UK exit date from the European Union was delayed to October 31, 2019.
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