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LMax Exchange, a UK-based non-exchange forex broker and technology provider, said on Tuesday it plans to seek regulation in Ireland, unless the UK government preserves the EU single market passporting rights for the financial services industry. The broker will begin regulatory filings in Ireland in January 2017, if no UK Government assurances are received by then.
LMax Exchange said it believes that it is inevitable that larger banks, funds and investment managers will do the same.
“We urge the government to make this [address the regulatory passport issue] 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,” said David Mercer, chief executive of LMAX Exchange. “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,” he added.
The UK is the world’s largest forex hub, accounting for 37% of the world’s forex market, with a trading volume exceeding $2.4 trillion as at April 2016, according to a survey conducted by the Bank for International Settlements (BIS). Since the country decided on 23 June via a referendum to exit the EU, it is uncertain what will happen to financial service providers based and regulated in the UK once the country leaves the union. Under the EU Markets in Financial Instruments Directive (MiFID), a company licensed to provide financial services in any EU member state is free to operate in all countries of the European Economic Area (EEA). If the passporting rights are waived, UK-regulated companies would loose access to all but the UK markets.
LMax Exhchange operates in more than 90 countries, 22 of which are member states. If the company does not seek regulation under another EU legislation, it risks losing a quarter of its client base.
LMax Exchange is regulated by the UK Financial Conduct Authority (FCA) and is the first multilateral trading facility (MTF). It offers trading in 70 spot forex pairs, CFDs, bullion, equity indices and commodities. The broker serves retail and institutional clients. It recently launched a New York-based institutional forex exchange and joined trading platform MetaTrader 5 (MT5) as liquidity provider.
In the meantime, France is preparing itself to take over its wing some of the financial entities that are currently based and regulated in the UK. The AMF expects in the context of the Brexit vote many UK-licensed entities to seek to relocate in other EU jurisdictions, such as its own. For the purposes, the AMF has simplified and speeded up the licensing procedures for financial service providers licensed in the UK.
The number of forex brokers that hold a UK license is long. It includes, among others, FXCM, Gain Capital (aka Forex.com), FxPro, Avus Capital (aka Trading 212), XTB, Oanda, ETX Capital, Admiral Markets, FXOpen, HYCM.