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UK traders find ways around Brexit

Traders

As there was almost nothing in the Brexit agreement on rules for UK financial services firms to operate in the European Union, UK traders are effectively cut off from operating in EU Markets. So they are finding ways to get around this.

These practices continue in despite of a warning statement from the European Securities and Markets Authority (ESMA) on Wednesday about “some questionable practices.”

While Brussels and London debate “equivalencies,” meaning the conditions under which market access might eventually become possible for UK traders legally to access clients and deals in the EU, the traders are finding “workarounds.”

Some of the simpler workarounds are “questionable,” some operate in a “grey area,” and other are just plain illegal, a London banker told the Cyprus Mail.

Simple ones involve simply setting up a telephone number and an email address in an EU Member state. Then they just don’t mention where they are located, and hope clients don’t ask.

Another simple ‘workaround’ is to continue trading with existing clients in Europe, while not seeking new ones. If no one asks questions, this seems to be practicable, if not clearly legal. Still another approach involves talking to clients in EU Member States, and then passing the orders on to another office.

This seems to be the go-to approach for traders that have connected with big banks for the purpose of getting around Brexit. The Big Banks are well-established in the EU, so traders can collaborate with them on orders. What this means for commissions for those traders is another question.

More complicated ‘workarounds’ involve invoking broker status for a firm’s trading operations: Whether some trading is covered under the Brexit changes is still a grey areas for the regulators.

Still another is to arrange a “reverse solicitation,” which means that a UK trader talks to a potential client in the EU, but then the paperwork shows that it was the client who sought out the trader to make the deal – this would be permitted under the current rules governing Brexit.

Since indicating reverse solicitation is only a matter of checking a box on a form in many cases, it’s easy for traders to put this through.

Some of the regulators in the EU are already taking action. “The Irish financial  regulator was giving a bollocking to UK companies operating ‘letterbox’ offices in Dublin to circumvent requirements. Threatening to yank their licences unless they followed the letter of the law and actually complied with the staffing requirements,” one commentator noted on Reddit.

Some large banks are taking action on ‘workarounds,’ forcing UK traders to hand over clients to their colleagues in the EU. Passing a loyal client to another professional, no matter how qualified, is never an easy thing to do, however, and may incite the client to start shopping around.

Some observers say that there is nothing new in traders finding‘workarounds: “”What’s the absolute minimum we can get away with?” is standard procedure in how financial services companies respond to regulation and has been for years.”

 

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