Brexit may benefit South Africa’s financial sector

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Brexit is the talk of the street. And by street, I mean the whole world. It is such a controversial topic that some politicians and businessmen try to avoid it completely. Ever since the second defeat from Theresa May’s Brexit plan, all hell has been breaking loose with Financial institutions stationed on the Island Nation.

Banks have been abandoning the UK en-masse, fleeing to either Amsterdam or Ireland and financial service providers are considering to do the exact same thing.

So where does South Africa come into the picture? Well, right about now.

Mass migration

By financial service providers, I mean Forex brokers, who are desperate for a lucrative market. Because of the damage that the GBP will receive from a “No-deal Brexit” these companies cannot afford to have the majority of their assets stationed in the UK anymore, therefore a mass migration could ensue. But where will they go?
Well, there are exactly 3 criteria that the country needs to fulfil, in order to feature a reputable Forex broker. They are:

  • Political stability
  • Emerging or sophisticated economy
  • Majority English-speaking population

Currently, there are 3 options that these brokers can choose from.

South Africa

South Africa is definitely considered as one of the emerging nations in terms of finance. 2018 may have been tough for the economy, but in terms of personal wealth and interest towards financial markets, it has been booming. According to topforexbrokers.co.za a testimony to that is the growing number of License applications with the FSCA (South Africa’s financial regulator).

Despite the fact that South Africa’s political sphere isn’t the most stable in the world, it can easily be glanced over by large brokerages in favour of an emerging economy and a majority English-speaking community.

Another reason why South Africa is a great destination is the costs of operations. They are like pocket change when compared to costs in the UK. Furthermore, South Africa is in the general vicinity of the EU states in terms of time zones. SA is in the CET+1 (Central European Time +1) time zone, which makes their operations pretty much identical to the European based companies.

This gives the brokers an opportunity to still retain their general staff in Europe, in accordance with their HQ in South Africa, there’s just 1-hour difference and it will not hinder the operations at all.

Australia

Australia looks like the perfect destination on the surface, but once you look into it with a more detailed approach, several key deterrent factors start to emerge. They do indeed tick all of the 3 requirements listed above. Their economy is sophisticated, they have a stable political sphere, and the majority of the population speaks English.

The only problems are connected to the costs and competition in the country. A license from ASIC (Australia’s financial regulator) can number in the hundreds of thousands of dollars, which is something not many brokers can commit to. Furthermore, a sophisticated economy is already able to feature large brokerages with loyal customer bases. This makes Australia an extremely hard market to adapt to, which is also connected to more costs in marketing campaigns.

Furthermore, Australia is way off the time zones of Europe, therefore, having a tangible system in place to communicate with EU based offices is pretty much impossible, or at the very least, extremely complicated.

New Zealand

New Zealand also ticks all of the 3 requirements. The economy is emerging, the political sphere is calm and the population does indeed speak English. There is 1 major problem, however. The market is way too small to have a lucrative business.

Compared to the population of South Africa and Australia, New Zealand is like a dwarf country. The time zone is extremely far off as well.

Compromise or stay?

There is always a possibility for Forex brokers to face Brexit and remain in the UK. This is mostly connected to the hope of being free of ESMA regulations. If you don’t know, ESMA is the general financial regulation of the EU region. Last year it restricted leverage and CFD offering from Forex brokers, which significantly damaged their profits.

Unfortunately, however, remaining for that sole purpose alone is impossible. You see, FCA (UK’s financial regulator) has already announced that even if there is a no-deal Brexit, the ESMA restrictions will remain on the Island.

So in the end, brokers are more likely to flee the country. Not all of them of course, but at least a significant part. It is my belief that most of them will be going to South Africa, as it has the most potential and carries the least amount of risk.

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