Regulator clampdown to dent IG revenue by 10%

FTSE 250 spreadbetter IG Group said on Wednesday that it has continued to perform well in the final quarter of this year, but that revenue in FY19 will be lower due to the impact of regulatory changes in the UK and EU.

IG said the implementation of product intervention measures from European regulator ESMA in the first half of FY19 will dent revenues by around 10%. However, it expects to return to growth after that.

The changes by ESMA will apply only to retail clients, not professionals. IG said that since last November, it has received around 15,000 applications from clients to elect to be categorised as professional and 3,800 clients are now categorised as professional.

IG said the process for assessing these applications is "appropriately rigorous", with more than three-quarters of the applicants to date rejected. Despite this, professionals contributed over 35% of UK and EU over-the-counter leveraged revenue in the last three months and this proportion is expected to rise to 50% when the ESMA measures come into effect.

ESMA has proposed leverage caps of 30 times on foreign exchange and two times on cryptocurrencies.

The company said net trading revenue for the full year is expected to be around £565m versus £491m in 2017, while operating expenses, excluding variable remuneration, are expected to be around £254m, up a touch from £253m and in line with previous guidance. The charge for variable remuneration is expected to be around £36m versus £24m.

Numis said revenues of £565m are ahead of its forecast of £560.9m.

"As the contracts-for-difference industry matures and regulation is introduced to restrict the activities of the less scrupulous providers, we believe IG's market position should improve. We see this enhancing the quality of the group's income and believe its best in class practice will ensure that it is less negatively impacted from regulatory change.

"We expect the number of providers to shrink, as many of IG's smaller competitors are already struggling to break even. IG have guided that they expect the ESMA measures to reduce revenues by less than 10% and we have already included this in our forecasts."

At 1125 BST, the shares were up 1.1% to 895p.