Offshore brokerage will boom as onshore regulations tighten, says EBC UK chief

The friction costs of doing business in mature jurisdictions will drive more and more smaller players offshore, argues David Barrett

July 8, 2024

The first years of the pandemic saw a surge in online trading activity, as the working-from-home trend and low interest rate environment saw more and more people taking their financial future into their own hands. David Barrett is CEO of EBC Financial Group (UK) Ltd, which was founded in 2020: he discusses the demographics and regions that have been driving growth in the brokerage industry, why EBC chose the Cayman Islands’ CIMA as its newest regulator, and the forces likely to push more smaller brokerages offshore.

There are more videos from this interview with David Barrett, where he explains how EBC defeated a clone attack, and why the company has United to Beat Malaria.

World Finance: David, bringing a new company into the brokerage market at that time, what was your experience of the demographics and the regions that were driving growth in the industry as a whole, and for EBC in particular?

David Barrett: So I think generally speaking in brokerage area for everybody, APAC has been the main driver. The growth in virtually every broker’s client base has come from that region. China clearly is very busy, but there are a lot of other countries in the region that have very, very strong growth.

I suspect a lot of it is to do with the demographic of people out there. There’s a young audience, they’re gambling online more, they have better access to tech, the ability to, you know, connect, is much, much better than it always used to be. And I think they have disposable income, they’re more affluent than they have been. And they probably want to achieve and to strive.

And I suspect that’s why APAC has been such a big driver of it.

World Finance: After that initial pandemic surge, was there a big drop-off in active accounts?

David Barrett: It’s very difficult to draw a baseline as to what you’re comparing against. Because if you think about what happened during the pandemic, clearly everybody was at home, everybody was twiddling their fingers, everybody was looking for something to do. And I think online trading in general boomed.

The volumes on some of the exchanges, and particularly the Asian exchanges, went up by up to 50 percent. There’s no doubt there was a lot of growth, and there’s no doubt that a lot of people once they want back to work fell away from their daily activity of logging on and doing some trading.

I think also, you know, the meme stock thing drove a huge amount of interest. Once that turned around and collapsed, a lot of people will have lost money and a lot of faith in what they were doing and what they were being told on social media about what they could achieve.

But for the group, I would say our volumes have done nothing but go up.

World Finance: You’ve been growing extremely rapidly – you recently set up offices in Singapore, Bogota, Kuala Lumpur. You’ve just been licensed in the Cayman Islands. How is this setting EBC up for the years ahead? What’s the strategy?

David Barrett: A lot of it is, as they brand recognition has come up – and I think our marketing team have done a tremendous job, because it’s a fairly saturated market, but I think our brand recognition has gone up. And you look to grow. And you look to grow into regions and centres that have good support, good infrastructure, good quality staff that you can onboard. And the places that we’ve gone to have tended to be along that way.

Caymans, we set up mainly because our belief is that the offshore brokerage market will continue to get more difficult from a regulatory / banking / technology provision side of things. So if you’re looking at an offshore jurisdiction then the Caymans is probably one of the best out there. CIMA, who’s their regulator, is very similar to the FCA in terms of the way that they look at things, and the way that they monitor, so the credibility of being able to get a licence there is quite high.

But I think what you’re trying to do is, you’re trying to build out the brand at a pace that makes sense. And you’re trying to do it in a way where you’re touching the right environments in the right locations.

World Finance: And what do you see as the future of the industry? As you said, more mature markets are particularly challenging, regulators are really tightening up on leverage – how do you see this playing out?

David Barrett: I think that continues. I think the regulators in mature jurisdictions will continue to be tough. I think we’ll see more and more of the smaller players getting driven out of those jurisdictions, because the friction costs of maintaining a business is very high. You need more staff, you need more tech, you ned more capacity to be able to put what the regulator’s asking you for.

So the natural, sort of, byproduct of that, is that the smaller brokers will tend to go offshore.

That can be a good thing or a bad thing. If you’re a client and you’re looking for more leverage, you’re looking for different products that you can’t get in a good jurisdiction and you go offshore, there’s nothing wrong with that. But what I would say is, if you’re going offshore, you have to be aware of who you’re dealing with, what they do and how they do it. There’s a lot of bad actors out there. Do your homework and look after yourself, because it can be dangerous.