Features

How Brexit will affect the CFD and spread betting industry

Matthew Partridge talks to Andrew Edwards, CEO of Saxo Capital Markets, about how Brexit is affecting both his firm and the industry as a whole.

180326-copenhagen-b

With Brexit now much more certain than it was even a few months ago, business leaders are much more willing to speak about how it will affect them.

Andrew Edwards has been CEO of Saxo Capital Markets, one of the best-known multi-asset investment and trading providers, including contracts for difference (CFDs), since November. Before that, he worked for City Index and ETX Capital. Here's his take on how Brexit is affecting both Saxo Bank and other providers of CFDs

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

For the first 18 months since the vote, most firms decided "to postpone decisions, or do the bare minimum of planning to satisfy their shareholders", says Edwards. But in the past few months, there has been a "decisive change", with companies across the board "starting to flesh out their plans".

Most firms are "looking in depth at the impact and the risks". In the financial sector there is now a widespread recognition that, thanks to EU membership, institutions have enjoyed "largely frictionless movement of talent and services" and that, post-Brexit, they "are not going to have the same level of freedom".

Advertisement
Advertisement - Article continues below

The loss of financial passporting is a blow, but isn't all bad

For example, as a subsidiary of a large Danish company, Saxo regularly transfers staff between its offices in London and Copenhagen and vice versa. The two offices also carry out certain functions for each other. When Brexit does take place, such staff transfers will become much more complicated, as there are likely to be substantive restrictions on free movement.

With the loss of financial passporting, some types of financial transactions between the two offices may become impossible, while others may have to be carried out on a paid-for basis (increasing the amount of paperwork and bureaucracy).

Still, Edwards admits that "the loss of financial passporting isn't all bad". This is for two major reasons. Firstly, Saxo already has separate entities for each country, so it will still be able to serve customers across Europe.

More importantly, at the moment, the major spread betting operators, and firms like Saxo that offer CFDs and leveraged forex, face significant competition from fly-by-night firms in certain light-touch' European jurisdictions. These firms have "contaminated the industry" by engaging in shady practices. At the moment the FCA can do little about them because they are allowed to passport into the UK. However, after Brexit the FCA will have much more ability to either block them from the UK market, or force them to behave in a more ethical and transparent way.

The UK leads the way in regulation and will continue to do so

Whatever happens, Edwards doesn't see the UK adopting a low-regulation model. Indeed, the FCA has a reputation of being the "gold standard for regulation", with the rest of Europe following its lead the ESMA (European Securities and Market Association) proposals on leverage and promotions are likely to follow the FCA's original ideas, which it outlined in 2016. Even after Brexit the two bodies are likely to still work closely together, even if the FCA is no longer formally bound by the ESMA's decisions. The bottom line is that there "isn't going to be a lighter touch".

While many in the industry think that the proposed restrictions on leverage go too far, Edwards disagrees. He notes that, "Saxo has never been aggressive on leverage" and "has never offered incentives to customers to start an account". Additionally, relatively few Saxo clients have negative balances something else that Edwards thinks has given the industry a bad name.

Advertisement
Advertisement - Article continues below

Although the reforms are still "the biggest change for two decades", they will reward established companies that have an operated "a customer friendly business model" at the expense of those who have solely focused on providing the highest levels of leverage. Overall, we will see "fewer, better behaved companies".

It won't be painless, but it's not the end of the world

While some business leaders have complained that the uncertainty around Brexit has prompted some staff to return to continental Europe, Edwards hasn't seen any evidence of this at least not so far. However, he feels that the "number of Europeans at all levels who are applying for jobs with us has fallen noticeably". University graduates, especially from Eastern Europe, "are definitely thinking twice about coming to London", though part of this is due to strong wage growth in Poland and elsewhere that has narrowed the gap between the two countries.

Edwards is mildly optimistic about what the post-Brexit UK-EU relationship will end up looking like. He thinks that "once these early stages have been completed the main players will be able to put their egos aside", especially since many of the talks will take place between industry experts "who will have their commercial hats on". Given that the UK is Europe's major trading partner, he thinks that it should be able to get a better trading deal than Canada, in a much shorter period than the seven years that it took Ottawa and Brussels.

Of course, it's not all going to be painless, and UK firms will have to accept that they will lose a lot of access to the EU after Brexit. After all, "Europe can't be seen to be giving a non-member a better deal that existing members", points out Edwards. Still, "one thing that I've learned from being a businessman is that big deals can be negotiated surprisingly quickly if both sides are willing to work hard".

Advertisement

Recommended

Visit/economy/uk-economy/brexit/600759/brexit-begins-what-do-the-uk-and-the-eu-want-from-a-trade-deal
Brexit

Brexit begins: what do the UK and the EU want from a trade deal?

With Brexit now done, the trade talks can begin. But who wants what from a UK/EU trade deal, and how likely are they to get it?
3 Feb 2020
Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/516840/another-brexit-delay-so-what-happens-now
Economy

Another Brexit delay – so what happens now?

Last week’s excitement over a Brexit deal getting done proved to be premature. John Stepek looks at where we are now, and what it means for your money…
21 Oct 2019
Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019

Most Popular

Visit/investments/property/601110/house-prices-and-covid-19
Property

House prices and Covid-19

The housing market is in deep freeze – what happens when it thaws out?
5 Apr 2020
Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/economy/global-economy/601106/the-moneyweek-podcast-russell-napier-how-much-debt-is-too-much
Global Economy

The MoneyWeek Podcast – Russell Napier: how much debt is too much?

Merryn talks to financial strategist and author Russell Napier about the huge levels of debt embedded in the global economy, the governmental response…
3 Apr 2020