IG Group ready to mitigate regulatory headwinds

24 July 2018

IG Group chief executive Peter Hetherington believes the company is in a strong position to mitigate the adverse impact of regulatory changes in the coming year after a 32% rise in operating profit headlined record annual results.

Speaking on a conference call this (Tuesday) morning, Hetherington said that although the effect of regulatory changes in the UK and European Union remains uncertain on the bottom line, operating expenses will increase and revenue is likely to dip in the next financial year, before growth returns in the 12 months through to the end of May 2019.

Operating expenses edged up by only 1% in the latest annual figures through to the end of May 2018, helping IG Group to post operating profit of £281.1m (€315.2m/$369m) on the back of a 16% increase in net trading revenue to £569m.

However, the retail trading and investment services provider's CEO said that growth in existing markets and new business in other jurisdictions had helped to spread risk ahead of regulatory headwinds.

Moreover, Hetherington (pictured) said that further clarity on regulatory changes in the UK is on the horizon, with the Financial Conduct Authority set to launch a consultation in the final quarter of this year on “to what extent” the national regulator could adopt product intervention measures recently announced by the European Securities and Markets Authority (ESMA).

Spread-betting firms were left reeling in December when ESMA confirmed it was considering restrictions on the marketing, distribution and sale to retail clients of binary options.

ESMA adopted the final product intervention measures on June 1.

“It has been an excellent year for IG Group financially and we are well positioned to mitigate the impact of regulatory change,” said Hetherington, who added that he hoped to be “speaking less about regulatory matters” in future years.

“We are pleased that there is now greater clarity around the nature and extent of regulatory change in the UK and EU affecting the CFD [contract for difference derivatives] industry.

“As ESMA's product intervention measures are focused on the CFD industry, they risk creating an unlevel playing field by giving an advantage to other forms of leveraged trading products which are offered to retail clients.

“IG has a long history of successful innovation and is committed to offering the widest possible range of trading opportunities to appropriate clients that are fully compliant with regulations.”

Hetherington said an increase in spending on technology and innovation – which was £88.5m in the most recent results, down from £90.6m in the previous year – would account for the bulk of the higher operating costs in the 12 months through to May 31, 2019.

Hetherington added that he expects IG Group to continue to exploit new markets.

“Switzerland and Dubai are doing very well for us and we hope to secure a licence for a Forex offer in the US soon as we believe it is an under-served market,” he said.

“We are also pending in two other markets where we currently don’t have material revenue. They are materially smaller markets than Switzerland and Dubai.

“We expect to grow in new countries and existing markets. In 2002, 100% of our revenue was from the UK, but now it’s less than half.”