IG Group blames EU regulations for H1 revenue drop

Investment services provider IG Group has warned that regulatory headwinds have led to a revenue drop of around 6% year-on-year for the six months period ended November 30.

IG Group, which on January 22 will publish its update for the first half of the financial year ending May 31, 2019, cited the introduction of European Securities and Markets Authority (ESMA) regulations for the fall.

At the start of July, ESMA, the European Union securities regulator, renewed a ban on the sale of binary options to retail customers. A month later, fresh ESMA restrictions relating to the provision of contracts for difference (CFD) products to retail clients became effective.

This led to IG Group posting a 5% fall in revenue to £128.9m (€146m/$171m) for the first quarter of its fiscal year, ending August 31.

In a trading update issued today (December 4) to the London Stock Exchange, the company said that group revenue in the four-month period since all the measures came into force is expected to be around 10% lower than in the same period in the prior year.

Underlying revenue in the four-month period from European Union markets is expected to be around 20% lower year-on-year, wiping out up a 9% increase in revenue from the group’s business in the Asia-Pacific region and other jurisdictions not covered by ESMA.

The company added that around 70% of UK and EU revenue in the four-month period had been generated from professional clients. This is partly due to the increasing number of clients in the ESMA region who have elected to be classified as professional, while some 1,200 clients who previously contracted with a UK entity are now trading with an entity outside the ESMA region, IG Group said.

The number of new over-the-counter clients who traded for the first time with IG Group in the first half of the year was 14,600 – down from 18,027 in H1 2017. This included a near-30% fall to 8,200 clients in the ESMA region, while the number of non-ESMA clients remained relatively flat.

Following the announcement today, IG Group's share price had dropped by more than 7% by 11.20am.

Despite these challenges, and with June Felix (pictured) having been named as the new chief executive at the end of October, the group has insisted that it is making progress with its strategic initiatives.

Notably, IG Europe, the group's client-facing subsidiary in Germany, has received its licence from the country’s financial regulator, the Federal Financial Supervisory Authority (BaFin). This will guard against possible disruption caused by Brexit by ensuring the group is able to offer its products in all EU member states following the UK’s scheduled departure from the union on March 29.

Additionally, the group's US subsidiary has been approved as a member of the National Futures Association and is now registered to operate as a retail foreign exchange dealer.

Felix, who had served as a non-executive director of the group since 2015 and has a background in payments and technology corporations, replaced Peter Hetherington, who stood down unexpectedly in September.

In July, Hetherington said that IG Group was in a strong position to mitigate the impact of the regulatory changes after the company reported a 32% increase in operating profit on the back of record turnover in the 12 months through to the end of May 2018.

However, it is understood that the group’s board had been keen to broaden the company’s focus beyond CFDs, which ultimately contributed towards the change at the helm.