FX: MTFs still reluctant to move even as Brexit approaches
With less than 10 months to go until the UK formally leaves the European Union, most FX venues remain content to wait for the outcome of negotiations around key issues such as financial passporting before confirming their future strategy.
The greatest obstacle to post-Brexit planning is uncertainty around the ability of UK financial services firms to access the single market after March 29, 2019.
Discussions around this issue are likely to go right to the wire, leaving clients and venues little time to react.
Passporting is critical for FX and money transfers, because they rely on bank accounts held in multiple countries, explains Henry Wilkes, founding partner of Institutional FX Advisory Partners (IFXAP).
“With increased compliance and regulation, institutions could lose their licences and therefore their bank accounts, making it difficult to operate,” he says.
Spot FX trading is outside the scope of Mifid II, so London should remain the global hub for this activity, which adds complexity to the decision facing institutions over whether to move other elements of their FX business.
Wilkes reckons venues will opt to apply for an EU licence to work alongside their London licence to give them flexibility.
“My sense is that we will not see a full-scale move from London, but rather the strategic use of European locations to supplement existing business models and infrastructure,” he says.