IG Group Unconcerned By New French Regulations
IG Group, one of the largest over-the-counter investing providers in Europe, have made their first official comments on France’s new sweeping ban on the industry’s advertising to consumers. The company expressed their lack of concern for the new regulations, which went into effect at the start of 2017, and have noted that the laws could even provide a competitive advantage in the medium-to-long term as other companies struggle to adapt.
The investment firm noted that the regulations apply to a certain subset of the CFD, binary options, and foreign exchange industry, but they had previously implemented new rules that would exempt them from the ban regardless. Additionally, the company’s revenues from the French market are not estimated to be a major part of its overall earnings. IG Group already lost billions in market capitalization in response to new regulations implemented in the UK as overall sentiment turns against the industry in Europe.
New Ban a Competitive Edge?
As some firms scramble to adjust after France’s new “Sapin II” law goes into effect to start 2017, IG Group seems content to stand pat and hold its course. The company noted in its first official comments following a series of regulatory losses for the industry that it did not see a major hurdle from France’s new law. Sapin II is designed to create more transparency in investing, but includes language that prohibits the advertising, through any electronic medium, of any high-risk and high-leverage online investment products. This includes foreign exchange, binary options, and in some cases, the contracts-for-difference that make up a large portion of IG’s earnings.
In prepared statements, IG declared on Monday that the new law would not “have a material negative impact on its business in France in the short-term”. IG noted that most of its current clients would not be affected, and their onboarding of new investors would not see a large drop-off, since they believe that their products are exempted thanks to their compliance with the ban’s restrictions. Sapin II’s limitations on advertising are based on the amount of leverage provided by investment firms, which generally includes a broad swath of the industry.
On the other hand, IG claims that it had already implemented new measures in adherence with the new regulations, including loss-by-position guarantees for new clients. Essentially, according to the company, this will guarantee that clients cannot be left with negative account balances in cases where trades go awry. Thus, IG sees a strong opportunity to capitalize on a French market that will be left mostly wide open by a dearth of viable investment options for consumers looking for OTC investment products.
Will The Industry Adapt?
While IG seems unconcerned of the new developments, some industry experts foresee compliance being difficult for many firms. For one, the new ban’s stipulations are less clear-cut than many companies believe, meaning that adhering to new regulatory frameworks is not a simple matter of limiting leverage across all products. Instead, compliance is defined on a more product-by-product basis, and thus not easy to implement in one fell swoop.
Many have foreseen that the industry, at least in France, will suffer greatly over the medium-to-long term as revenue streams dry without a viable alternative. Additionally, similar restrictions implemented in Belgium, Germany, and Holland have started to close doors for OTC investment providers. The result could be a radically different industry from the one seen today.
IG Group could very well survive, but is still contending with harsh regulations imposed by the UK’s FCA, which sent investors into a panic and wiped away millions in market capitalization for the company.
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