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.

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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.

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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

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