FNG Exclusive… FNG has learned via regulatory filings that FCA licensed Retail FX and CFDs broker London Capital Group (or as it is more commonly called, LCG) has seen a severe decline in its Revenues, as the company transitions to what it calls a “new business arrangement” with its parent company, Swiss neobank / neobroker FlowBank SA which is run by former LCG CEO Charles-Henri-Sabet.

LCG, which as recently as 2018 was doing annual Revenues of more than £31 million, saw its Revenues in 2021 drop by 86% YoY from £11.3 million in 2020 to just £1.585 million in 2021. The company posted a net loss of £1.747 million for the year, although thanks to cost cutting that was down from a £2.132 million loss in 2020.

As was also exclusively reported at FNG at the end of 2022, LCG brought in a new management team to run the company, led by new CEO Dave Worsfold. Mr. Worsfold was previously COO of ADSS, and Head of Operations at CMC Markets. The company also recently inked a deal with IG Group, to offer LCG clients access to IG’s trading platform.

LCG is a provider of trading services and solutions, specialising in over-the-counter, or OTC markets to private, retail high net worth and professional clients. LCG offers customers access to a diverse range of over 5,000 financial products via contracts for difference (“CFDs”) and financial spread betting which are investment products with returns linked to the performance of an underlying in foreign exchange, precious metals, commodity, index, equity or security. The ultimate shareholder is FlowBank SA, a bank incorporated in Switzerland. FlowBank SA acquired LCG in June 2020. The transaction is pending FCA approval.

Revenues at LCG are generated from the dealing spread — the difference between the buy and sell price of the CFD and spread betting products, commission income, exchange gains and interest.

LCG said that a significant structural change to the company, the ongoing impact of Brexit, regulatory changes to the CFD industry and market volatility have all impacted business performance for the twelve months ended 31 December 2021. Overall, the company has experienced a material fall in revenues, but reduced costs have resulted in a smaller operating loss for the year versus the year prior.

LCG’s transition to a new business arrangement with its parent company FlowBank SA required a major adjustment to day-to-day operations and management expects to continue to devote significant time into making it a success. The structural changes have reduced costs but resulted in an expected reduction in average monthly trading volumes and revenues. LCG is working to take advantage of the potential financial synergies and technological and efficiency improvements resulting from the changes.

Throughout the year, the company focused on its UK customer base, which is regulated by the FCA. Without an EU license, the company has lost passporting rights to attend to clients living in the EU as a result of the exclusion of the financial services industry from the final Brexit deal agreed in 2020. Existing European clients have been redirected to its Group companies able to support locally.

Financial market conditions were favourable across the year, helping offset some of the lost revenue owing to structural changes and lost access to the EU market. Elevated interest in trading from clients as well as heightened market volatility are expected to continue to be positive driving forces for trading volumes.

In January 2021, LCG said it changed its approach to market risk management by engaging in a matched trade hedging arrangement with its parent company, FlowBank SA. In return for directing its hedging trade flow to FlowBank the company receives a rebate based on notional turnover along with operational services from the parent company. The arrangement has enabled LCG to significantly reduce operational costs as well as lowering its capital requirements with the aim of providing greater financial stability to the company.

LCG added that 2021 has seen an adjustment across several key operating metrics. The key metrics which revolve around client participation during the challenging trading conditions and AML project to close all inactive clients, the total number of monthly active clients trading down 27% to 4,461 (2020: 6,082) and trading volumes down 58% to £68 billion (2020: £163bn).