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#1 23-12-2018 20:54:34

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2019: a year of consolidation for brokers

2019: a year of consolidation for brokers

Article originally appeared on financemagnates

For many years, we've been hearing about an upcoming industry consolidation. The theme started in 2015, when some of the risks of running a retail brokerage became apparent.

Back then, the regulatory reshape of the industry was still far away, but experienced industry professionals were starting to see that the business is about to change in a material way.

The advent of the new regulatory framework which was publicised in December 2016 by the FCA was largely met by the industry with denial. While the London-based regulator led the effort, industry insiders have been largely dismissive of the prospects for such a radical change to regulations in Europe.

Despite this, the changes became reality and since August 2018, many brokers have concluded that the industry is really changing for good.

Next step: offshore jurisdictions

After the first couple of months were viewed as very difficult, the industry adopted a new strategy: shifting to markets outside of the EU and offshore regulatory jurisdictions was the next logical step.

The mainstays of the industry in the meantime started driving client acquisition costs much higher than any of the small companies could afford. With major firms losing 30% of their revenues in the EU, the majority of smaller firms have lost 40 even 60% of their income.

These numbers have not been officially mentioned, but the rumours circulating across the industry are unforgiving. The status of the industry has changed, focusing on the short term is no longer an option if you are running a regulated organisation.

Australia has been a regulatory safe haven, and that saved a lot of companies who have an ASIC license. That being said, the period during which the land down under will play this role is limited.

The financial regulatory regimes across the G-20 are frequently synchronised. According to estimates from industry insiders from the region, brokers can expect between 1 and 2 years of leeway. For some companies that is enough, others will end up paying for an expensive license only to find it useless in a little over a year.

Consolidation Consensus

Industry executives are not shy when speaking about consolidation. It seems that after 2 years of talk that was foreseeing an M&A spree, it is finally coming in 2019.

This year saw some big deals, including the sale of OANDA and the focus of GAIN Capital on its retail unit.

Retail brokers appear to be ever more dependent on income from outside of the EU and America.

One thing is clear, those brokers which havenít been working on diversifying away from Europe will either move offshore or be sold to larger companies who made a ton over the past several years.

In the meantime, 2019 might indeed be the year of consolidation. If youíre a buyer, you better keep your eyes open, if youíre planning to exit, be swift and donít wait any longer.

"Anything worth having is worth going for - all the way." - J.R. Ewing



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