Banks reluctant to give brokers client fund accounts, we look at a possible solution – FinanceFeeds research

We look at the potential solution to the current difficulties associated with establishing bank accounts for operating capital and client money that brokerages are currently experiencing

Last week, FinanceFeeds conducted an investigation into the global reluctance by large banks to accept retail FX firms as customers for commercial banking accounts in which they can store operating capital, and segregated client fund accounts.

In essence, Tier 1 banks in top quality jurisdictions including US, Canada, Britain, Australia, Israel and Cyprus – effectively all regions with a high level banking environment, good safety and compliance rulings and large institutions that carry corporate accounts for some of the world’s largest blue chip companies as well as being home to the lion’s share of the world’s retail FX industry – are continuing to curtail their service and are increasingly turning away FX brokerages as customers.

This means that not only do brokers have limited options as to where to store their operating capital and client funds, but also are now becoming the target of thefts from corporate bank accounts because FX brokers are being increasingly forced to use third degree banks in less than salubrious regions, which, according to our research, is causing great difficulties in security of funds.

Our research involved a case in which a retail FX brokerage have had several hundred thousand dollars stolen by fraudsters which is 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.

19f2ced
Lucian Lauerman, Head of API Business, Saxo Bank

This research resonated with some of the large firms that provide liquidity to brokerages and have vast and solid capital bases, and this week in London, FinanceFeeds met with Saxo Bank senior executives who raised the importance of this point, especially with regard to how to find a solution.

Meeting with Lucian Lauerman, Head of API Business at Saxo Bank in Canary Wharf, London on Friday, a solution to this very important issue was discussed.

Mr. Lauerman stated “I took note of your recent research with regard to the difficulties experienced by brokerages in opening bank accounts for operating capital and holding client funds.”

FinanceFeeds then suggested that there could be a method by which specialist firms could provide these services, thus avoiding the pitfalls that many brokers are now exposed to by being pushed toward third tier banks.

“Sometimes we meet clients that have well run businesses and are doing good job for their clients, but they are having difficulties getting bank accounts” explained Mr. Lauerman.

“Recognising this issue, several years ago we invested in Saxo Payments, a business that provides a real alternative. FX payments businesses need a bank account in order to send and receive payments and they need a service that is fast and low cost. The Saxo Payments Banking Circle provides exactly that solution. It allows companies who are serving merchants in the digital space to open physical and/or virtual IBAN accounts in 25 currencies, in their name and/or their client’s name” he continued.

The accounts can be domiciled in the UK, EU and Denmark, with Asia and the US becoming available in 2017. Companies can send and receive cross border and local payments at a low cost and within seconds rather than days, if the other company involved in the transaction is also a Banking Circle member. And payments are sent in the underlying client’s name, in order to increase transparency and reduce rejections.

33d8e05
Peter Plester, Head of FX Prime Brokerage, Saxo Bank

“Saxo Payments was established to provide a simpler, faster and more cost effective way for businesses to make and receive payments. The Banking Circle cuts out the middle man – and the fees charged” said Mr. Lauerman.

At this point, Peter Plester, Head of FX Prime Brokerage at Saxo Bank explained “This is the point at which it is important to consider the quality of a prime brokerage when looking to establish liquidity relationships. Where do they do their banking? Do they have a banking license and therefore the capital adequacy ratios are enough to secure good banking relationships, and can they offer services that are far superior than other non banks?.”

It is of great interest that senior industry executives on the institutional prime brokerage side of the business have the ability for retail brokerages to maintain good banking relationships for the purposes of lodging operating capital and the safeguarding of client money as priorities and are thinking comprehensively about this.

It is FinanceFeeds opinion that should a firm which is in our industry that has a banking license, such as Swissquote, IG Bank or Dukascopy actually offer such a service, it would not only be a very good additional service to brokerages, but in some cases, a vital one.

Photograph: Canary Wharf, London. Home to Saxo Bank’s London headquarters. Copyright FinanceFeeds

Read this next

Digital Assets

Crypto miner BitFuFu to go public on Nasdaq through $1.5 billion SPAC merger

Cloud-mining service provider BitFuFu, backed by industry giant Bitmain, will go public through a merger with a blank-check firm in a deal that values the combined entity at $1.5 billion. This valuation is 4.6x 2022 projected revenue and 3.3x projected December 2022 annualized recurring revenue.

Digital Assets

Bithumb will no longer allow withdrawals to unverified crypto wallets

Bithumb, one of South Korea’s big four exchanges — alongside Coinone, Korbit, and Upbit — exchange is moving to block the use of anonymous wallets.

Retail FX

Cyprus compensation fund (ICF) to protect customers of Sonafx and BelightFX

The Cyprus Securities and Exchange Commission (CySEC) today published a new list of financial services providers that were disbarred from its lifeboat scheme.

Opinion

Exclusive interview with Stacey Van Niekerk of Finalto Group

With qualifications in A+ IT certification; in programming and wealth management as well as currently studying Investment Management at CISI Stacey Van Niekerk is an incredible asset to the Finalto Group. Having 10 years combined extensive experience in the Financial Industry working and helping Brokerage Firms and Fintech companies assist clients around the world in regions such as Australia; Africa; Europe; Asia; Uk and Mena Stacey is now responsible for driving Finalto’s B2B technology offering.

Institutional FX

MOEX lifts restrictions on repo transactions, including short positions

Russia’s largest institutional trading venue has lifted restrictions it applied last month to repo transactions with a central counterparty (CCP) in US shares.

Retail FX

USGFX has a heavy shortfall in client money, nearly $350M missing

BRI Ferrier, the liquidators of Union Standard International Group, known as USG or USGFX, today said creditor claims have hit $357 million, and this amount may increase further.

Industry News

Ripple fails to stop discovery extension amid SEC’s 180º on Hinman’s speech

The plaintiff has made a 180º turn by suggesting that the speech wasn’t merely peripheral to actual policy formulation”, but was in fact an “essential link” in the SEC’s deliberative process with respect to Ether” and other digital assets. 

Digital Assets

Gemini hires Pravjit Tiwana as CTO with eyes on Web3 and Metaverse

“I want to help build Web3 and the decentralized Metaverse. The promise is as big as the Internet itself and Gemini is well-positioned to help build and catalyze that future.”

Institutional FX

Broadridge automates Santander’s Shareholder General Meeting services in Spain

Broadridge has recently expanded coverage for proxy processing and extended voting windows for 20 sub-custody markets in 2021, with more markets to follow in 2022 and 2023.

<