EU-UK MiFID Passport to be replaced by Equivalence as Hard Brexit unfolding

For those in the European or UK Forex, CFD and retail financial services industry hoping for some form of license passporting to remain in place as part of Brexit, it doesn’t look like you’ll get your wish.

UK financial industry lobby group TheCityUK, put together by a number of the UK’s leading banks and financial services companies, has formally dropped its request for EU MiFID passporting to remain in place as Brexit unfolds, after its initial lobbying efforts were hit by a brick wall with both the UK May government and with EU representatives in Brussels.

Instead, TheCityUK and UK financial concerns are pinning their hopes on pushing a more realistic agenda of Equivalence.

Equivalence would allow service providers from countries which are deemed to have ‘equivalent’ regulatory standards to trade freely across borders with clients in the country, under the client’s home country laws and regulations.

Equivalence would likely allow UK-based FCA-regulated financial services companies to continue to serve continental Europe based clients, but only in areas where the rules and regulations are deemed to be fairly similar.

It remains to be seen, however, if regulators across the EU will allow UK based online trading companies to have ‘equivalence’ access to their clients.

As we’ve witnessed recently, some EU country regulators have taken a much more strict stance to online leveraged trading than in the UK – with France and Holland banning virtually all ads for such brokers and products, Germany requiring brokers provide negative balance protection, and Belgium going a step further and placing a blanket ban on offering leveraged trading of any kind to its citizens.

Large FCA licensed Forex and CFD based brokers such as IG Group Holdings plc (LON:IGG), CMC Markets Plc (LON:CMCX), and Plus500 Ltd (LON:PLUS) have fairly large sized client bases in EU countries, and may need to look at serving those clients from a different location from within the EU, even if Equivalence happens.

Another problem with Equivalence is that it needs to be agreed upon country by country, and product by product. Some financial products and services may be allowed cross-border between the UK and each individual EU country, and some might not. And, unlike a set regime such as MiFID, Equivalence agreements can be revoked on virtually a moment’s notice by any individual regulator.

TheCityUK’s two-page summary of what its priorities for the UK financial services industry will be from the Brexit negotiations can be seen here (pdf).

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