Banking problem getting worse for retail FX industry. Brokers should use British banks only as Piraeus Bank now joins Bank of Cyprus in blocking accounts

The minefield that has become a major bugbear for many retail FX firms with regard to where, and with which institution, to hold bank accounts for their operational capital and client funds is becoming even more precarious.

As part of an extensive FinanceFeeds investigation into this very important matter, ongoing research has been conducted into the abrupt closing and blocking of brokerage accounts that has taken place among many mainstream banks, as well as the incarceration 0f operating capital meaning that companies cannot access their funds at all.

A few extreme cases that have been brought to light by our research that highlight the risks that face brokerages that are forced to use 3rd tier banks have recently emerged because of the reluctance by mainstream firms to maintain their business, some of which involve the theft of capital from accounts held by brokerages, due to lack of security of accounts, as many lower-level banks in overseas regions do not have the same level of security as those in regions in which FX firms (and companies in every industry sector) are used to.

In some cases, the level of theft of capital has been into the hundreds of thousands of dollars, which is alarming and most certainly a point worthy of consideration for brokers considering placing their business with banks that are not structured according to Basel III liquidity ratio levels or under strict regulations in terms of data security and identity verification compliance procedures.

We know of one brokerage which had its accounts closed for absolutely no reason whatsoever in Cyprus, which was then forced to use a third tier bank, and has had approximately $350,000 stolen from its operating capital account by fraudsters because third tier banks have weak security and their systems are easily hacked.

Another example, which is equally toxic, manifested itself in a brokerage in Cyprus having had its commercial bank account frozen by a Cypriot bank, with no explanation, resulting in the inability to deposit or withdraw funds, almost causing the downfall of his business.

Just imagine, a brokerage with a frozen account cannot pay client withdrawals, salaries, rent for premises, suppliers – and then would be subjected to the media finger-pointing from clients which would assume that the firm was intentionally not paying, when in fact it was the bank freezing the firm’s account without explanation. The CEO of that firm explained to FinanceFeeds “I will never, ever forgive the Bank of Cyprus for what they did to me. After months of wrangling with them, I managed to free my capital but they did not provide any reason for having frozen the accounts, nor were they co-operative or remorseful. I will never do business with them ever again.”

Since we began our research into this, several companies in this industry have made contact, and explained their difficulties with banks simply blocking access to funds without notice, and in some cases closing accounts, leaving brokers and service providers to approach other Tier 1 banks which decline them as customers once they declare that they operate in the electronic trading sector in any capacity whatsoever.

We have managed to notice the following definitive patterns as being prevalent and widespread

1) Bank of Cyprus

Bank of Cyprus has taken to accepting the deposit of funds into commercial accounts which are opened with relative ease, and then very soon afterwards blocking access. One particular recent conversation with a very experienced accountant that understands the global banking system led him to explain to FinanceFeeds “They (Bank of Cyprus) will open anyone an account, and accept funds – but just try getting your money out!”

Ironically, this is a major bank on an island which is one of the most preferred regions in which to operate a FX brokerage, yet it does to the brokerages what brokerages are terrified to do to their clients, and if they do so, there is massive recourse and retribution in the form of scathing reviews across the entire internet and litigation in some cases, yet the bank can claim that they can simply chop off access to bank accounts due to compliance and due diligence – which they will never explain the details of.

I actually visited the Bank of Cyprus International Business Unit (IBU) in Nicosia and asked some questions, and was greeted with very nonchalant responses and an apathetic attitude.

Many corporate customers of Bank of Cyprus in the FX industry have been given a massively bureaucratic run-around by being asked to send various forms over and over again every few months, whilst their funds are locked.

FinanceFeeds has also gained evidence of a massive smokescreen that is often put up by the Bank of Cyprus, which, in response to emails to its commercial center asking for funds to be unblocked are met with fob-offs such as “The banker who is dealing with it has left the company” or, the old favorite – “on sick leave”. I wonder how many executives who have worked tooth and nail to establish their businesses and then entrust their hard-earned capital to this inept organization have ever, in their entire career been “on sick leave”. I would wager probably none whatsoever.

In addition to this, Bank of Cyprus has taken to not depositing certain incoming payments into accounts and holding them, meaning that the payment is not visible on the corporate bank account or on the sender’s account, and no notification or reason is ever given. In short, avoid the Bank of Cyprus as they can cause serious interruptions to your business.

2: Piraeus Bank

A new pariah in the same neighborhood appears to be Piraeus Bank, which is a Greek owned bank that has branches in Cyprus. For apparently different reasons, Piraeus Bank has begun to implement capital control laws without notice, and not allow individuals from outside the Greek jurisdiction to withdraw more than very small amounts per week, citing capital control laws which stem back to the Greek bond crisis several years ago.

One particular investor, who has 100,000 Euros in a Pireus Bank account in mainland Greece has been told that if he chooses to repatriate his capital to the United Kingdom – his country of origin – they will only allow him to withdraw it at a rate of 420 Euros per week.

How long before Piraeus Bank begins to do this to company accounts whose trustees and owners are not based in Greece or Cyprus?

3: HSBC and Barclays – two of the largest FX dealers in the world 

Whilst Lloyds Bank, a firm which is not part of the large, British interbank FX dealer structure but is a massive commercial banking entity, has absolutely no disdain whatsoever for any FX firms or their technology partners and service vendors. As long as the business is registered to a British entity, Lloyds Bank is efficient and transparent in its service.

The irony is that HSBC and Barclays – two of the largest banks in the world in terms of interbank FX order flow, will not allow any new business from FX related firms on the retail side of the business, even if they are well capitalized. Neither of these British banks will resort to the tactics explained in the cases of Bank of Cyprus or Pireus Bank, but they will simply not open the account. Fancy an account at Citi or JP Morgan? Sure – give them a $100 million ringfenced deposit and away you go.

Both HSBC and Barclays rely on their interbank FX business as a core global business activity, yet they snub electronic trading firms – the very corporate customers that require their liquidity – whilst continuing to extend loans and mortgages to small retail clients with no capital.

Bearing in mind these matters, companies in North America that operate exchange-traded futures environments are also facing fear, as Wells Fargo is in the midst of a corporate shake up at director level, however it is absolutely nothing whatsoever to worry about as North American banks with long standing customers in the futures business which are members of large exchanges have no difficulty maintaining relationships and banks like Wells Fargo are conservative and well capitalized to the point of never exposing their customers – therefore either stay with the US based bank and do not worry about the replacement of executives – they all report to Senators and Congressmen who are government lawyers anyway – and if you are a US entity that needs British presence for clearing or other institutional purposes, Lloyds Bank is the first stop, with a UK-registered division of the business being important.

These pitfalls are becoming greater – FinanceFeeds will continue to research this as best we can in the quest for greater transparency and to help brokers and associated companies in the FX industry to not become affected.