Trends and Views from the London Summit and IFX Expo

Trends and Views from the London Summit and IFX Expo

A look back at a successful FMLS21

It‘s been a while since I’ve written a post-CFD event article. When I was working at Finance Magnates a number of years ago, writing about industry views and trends after the London Summit and IFX Expo was a regular feature I worked on. This year, with the IFX Expo and London Summit taking place a month apart, I figured it was as good a time as ever to dust off the keyboard and share my thoughts again.

My attendance at both events was with IHS Markit (formerly Cappitech) as part of their regulatory reporting team supporting EMIR, MIFID II among other things. Therefore, compliance and regulation took more of a center stage for my work. But speaking with other vendors and brokers still provides a good idea of overall trends in the market.

Cyprus Resources

At the IFX Expo, I had the chance to moderate the Regulation Panel. During all these panels, CySEC regulation and benefits of Cyprus come up. What surprised me was that rather than discussing the importance of an EU license, the panelists focused on the benefits of Cyprus-based resources. Specifically, a knowledgeable workforce makes it easier to hire for a new company and provides ongoing support and dealing expertise. In regards specifically to compliance, CySEC does a good job of setting ongoing tests that are required to be passed by compliance personnel and directors.

Beyond the panel, this trend is also something I happened to be seeing with clients and firms I work with where even if they arent regulated in Cyprus, are setting up offices there to tap into the local workforce expertise.

Payments

9 or 10 years ago when I attended my first IFX Expo there were three payment firms exhibiting at the show. Since then, payments have ‘become the show’. Whenever I speak with brokers about what they are looking for when they attend the IFX, payments solutions are nearly always the answer (every now and then my ears perk up and someone answers EMIR and MIFID reporting technology). This year was no different and payments remain a dynamic place to be. Banking relationships are always changing, fees from card issuers are rising (see Visa/Amazon battle for non-FX examples) and customer behaviors adapt to different payment types such as cryptocurrencies or localized wallets. Personally, payments isnt an area I have a lot of working experience with, but broker feedback has pointed to the importance of always keeping an eye on how fees work across different locations and card types. By tweaking payment relationships, firms are able to gather a few extra basis points of revenue which directly improves the bottom line.

End of matched principal license？

A popular term in the compliance circles is ‘regulatory arbitrage’. A common example to reduce capital requirements is launching a matched principal broker license in the EU or UK that requires only EUR/GBP 125,000 on open. All flow is then warehoused to a full principal broker entity held offshore with lower capital requirements and lighter-touch regulation.

However, new brokers are finding it more difficult now to open such 125k entities in the EU or UK. Regulators such as the FCA are rarely approving new 125k brokers to get licensed in the UK. Similarly, investors that are attempting to purchase existing 125k entities are more likely to see their change of ownership requests being denied or requiring a lot more due diligence documents than firms are comfortable with providing. Put together with new regulation that is phasing in higher capital requirements for matched principal licensed in the EU and UK over the coming years, full dealing licenses are becoming the de facto way to operate.

Cryptos

At the IFX Expo, there was a lot of excitement from CySEC about a new ‘registered’ designation that crypto firms were able to get from the regulator. To get registered, firms are required to go through the same process of getting a financial license. Once approved they would then need to adhere to certain AML and KYC requirements for onboarding new customers. They would also be required to submit certain periodic financial reports to the regulator. I can see the big picture being positive for retail customers as the CySEC registration would mean in principle that there is someone vetting the ownership of these firms and adding more credibility to them.

Beyond CySEC and KYC/AML, a few other areas that eventgoers were discussing that new regulation can occur are market surveillance and transaction reporting. Non-derivative cryptos currently dont fall under MIFID II, EMIR, or other OTC derivative reporting. However, as they become common and appear alongside stock trading products from brokers, it raises the likelihood that similar reporting requirements to that of stocks will be introduced into the market.

Documenting what you do

On a personal note, I had the chance to participate on the regulation panel during the London Summit. We had a chance at the end of the panel to provide any last comments. For me, I wanted to share recent experiences with clients that I thought could be a good takeaway for those attending.

The advice I had was for compliance professionals to document their work. This includes explaining why they are reporting EMIR or MIFID in a certain way along with their processes for handling day-to-day and periodic compliance work. What I have often encountered are situations where broker employees are leaving a regulatory gap for their colleagues. This includes cases where a programmer who created an automated process for regulatory reporting or ahead of compliance leaves. Without proper documentation of the process and why decisions were made, it makes it very difficult to ensure compliance procedures are capturing all requirements as well as applying needed periodic updates to changes in regulation.

Ron Finberg is a Director of Global Regulatory Reporting Solutions at IHS Markit and a former Senior Editor at Finance Magnates