London Metal Exchange brokers Sucden Financial and Mitsui Bussan Commodities are planning to open offices in the EU, providing the latest examples of how Brexit is forcing investment firms to adapt to win clients based in the bloc.
Sucden, one of the LME’s major brokers, plans to open an office in Hamburg and has already hired two staff members, according to its chief executive Marc Bailey. The company’s next step is to seek approval from BaFin, the German financial regulator.
“It is a pain,” Bailey said. “You have to file another set of accounts, you're going to need to have BaFin-trained compliance staff. It's a cost of doing business that wasn't there — you can't get away from that.”
London-based Mitsui Bussan Commodities, which specialises in energy and metals derivatives, is setting up a French subsidiary to ensure it does not fall foul of European regulations on approaching clients for business, said a person familiar with the firm’s plans. Mitsui Bussan, which is part of Japanese trading and investment group Mitsui & Co, also has offices in Singapore and New York.
The broker’s EU office, which is likely to be operational in March or April, will have about nine people, of which three will be marketing staff in the energy business who are being transferred from the UK.
The outpost will be essential for the company to “continue to service its existing customers and to expand its client base throughout Europe”, said Mitsui Bussan’s head of European energy Richard Breton.
Since the Brexit transition period expired at the end of last year, UK-based financiers have been coming to terms with a new regulatory landscape. Banks and brokers in London face tough restrictions on approaching or marketing to clients in the EU.
Although LME brokers without an office in the bloc can still handle EU customers’ trades and execute them on the exchange, they can no longer advertise their services with phone calls, face-to-face meetings, press releases or brochures. A loophole allows customers formally to ask for advice and services, but EU authorities have cautioned against misuse of this option.
Some larger members of the LME, for instance Marex Spectron and TP ICAP, already have EU offices, but many smaller brokers so far do not.
The Brexit challenge comes at a time of change for the market: last month it proposed permanently shutting its Ring, where metals have been traded since its founding in 1877.
Investment firms across London face a similar Brexit compliance task, with investment bank Numis announcing earlier this month that it would set up an EU office within a year.
Additional reporting by Philip Stafford