By Yael Warman
While some traders all around the world have been watching the charts looking for opportunities to make money off of the referendum news, even weeks ahead of the vote, others have decided to stay clear from trading. Whatever end of the spectrum you might stand in as a trader, you should know that the panorama will begin to change in ways other than volatility. We are talking about regulation for one thing.
Regardless of whether you’ve been trading for a while or you just began getting your feet wet, finding a broker that is regulated is rule #1 in FX trading.
So now that the UK has decided to dislodge itself from the rest of Europe, will your broker remain regulated?
Well, the first thing you should know is that the process of separation is not a quick one. The exit process of a member from the EU, as described in article 50 of the Lisbon Treaty, calls for the remaining members to finalize a withdrawal agreement stating the severance terms. The process may take as long as two years to even begin, so today, you just continue to do business as usual as far as regulation is concerned. Your broker is still regulated just as much as it was before the vote was cast.
Free Reports:
What happens after the exit agreement is instituted?
Ok, so once Britain is officially independent from the EU, a few things may happen. As you know, each jurisdiction in Europe works independently from one another, but having regulation in one EU jurisdiction, comes with some reciprocity from other jurisdictions within the EU, allowing brokerages the ability to conduct business across Europe. The UK not being part of the EU anymore means that brokerages licensed in the UK will no longer be allowed to conduct business in France or Germany for example and vice versa. As a trader, you should beware of brokerages licensed in the UK but not elsewhere in Europe and if you are a resident of the UK, then you should beware of brokerages licensed outside of the UK.
This is in black and white how things would be. Technically. But there is no such thing as black and white in politics and regulation. So, how would things look like in shades of gray?
Ideally, the UK and the EU would leave certain trade agreements in place that would allow for reciprocity between jurisdictions. In this case, the FCA license would remain valid throughout Europe and vice versa.
As a second best case scenario, we can look at what happens in the gaming industry as an example. Isle of Mann and Alderney are reputable jurisdictions in which to obtain a gaming license and although neither are part of the EU, operators holding a license issued by any of these two jurisdictions are allowed to conduct business in several European countries.
What’s the worst case scenario? If the EU and the UK fail to leave trade agreements in place covering FX regulation, then UK brokers would be obligated to set up shop in the EU if they wish to continue to target traders in say France, or Germany. EU brokerages that have obtained licensing from friendly Cyprus and are currently able to conduct business throughout Europe, including the UK, will no longer be able to do so and would be obligated to set up shop in the UK and obtain an FCA license.
In any event, regulation will certainly become stricter and wider, causing many brokerages to either close up shop or operate without regulation, exposing great risk to traders’ funds. If up until now we have been adamant about advising traders to only trade with regulated brokers, the new changes brought about by Brexit should make traders even more aware.
About the Author
Yael Warman is a creative writer with a strong background in marketing and advertising. Yael has been a writer for over 10 years and has worked for clients in various industries as well as her own companies and is currently the Content Manager at Leverate.
