Which is the best bank for companies in the FX industry to open an account with, and which to avoid? FinanceFeeds research

From freezing FX firm bank accounts for months at a time for no reason, to exposing firms to theft of their funds due to lack of security, and to the apathy and lack of interest from big banks in working with FX firms, FinanceFeeds looks at which mainstream banks get the wooden spoon, and why they should be avoided.

bank

A recent and very unpleasant dynamic that has blighted our industry is the reluctance demonstrated by mainstream banks to provide bank accounts for any entity which is connected to the FX industry, be it ancillary service providers or brokerages for the purposes of holding operating capital or client funds.

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.

Lack of transparency

Banks are always lecturing their commercial clients about abiding by the rules and how they must ensure transparency, yet research recently by FinanceFeeds has clearly shown that many mainstream banks that are in regions populous with companies either providing services to the FX industry or FX brokerages themselves are anything but transparent.

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.”

FinanceFeeds can categorically back this up. Many reports that have come from very reputable sources, including accountancy firms in Cyprus and professional services companies that work on behalf of FX brokerages which have power of attorney over several accounts with Bank of Cyprus have explained that the bank routinely freezes accounts, will not allow withdrawal or deposit, and makes firms submit and resubmit ID documents over and over, every few months, citing compliance purposes, when really it is little more than low-level ineptitude and lack of regard for their bread and butter business.

In Britain, things are not much better. HSBC and Barclays, both ironically two of the world’s largest FX interbank dealers, will run for the hills if any mention of FX industry is mentioned when applying for a bank account. Handelsbanken, which is Swedish but has many operations in Britain and only works with businesses on a referral basis, will not work with FX firms or businesses in certain jurisdictions, claiming that these are high risk entities.

Whilst this is problematic insofar as it forces firms to use third tier banks, it is not as toxic as the behavior of the Bank of Cyprus, which accepts custom, then freezes accounts, meaning that companies cannot access their own capital, sometimes for months at a time, with the expense of having to keep either paying a lawyer or accountant to attempt to convince them to free it, or actually flying to Cyprus (many CEOs of Cyprus FX firms do not live in Cyprus) to be confronted by hand wringing automatons who cannot make any progress despite making special trips to the bank’s International Business Unit (IBU) in Nicosia

Meanwhile, the bank will withhold internet access to accounts, not issue bank cards therefore companies cannot pay for essential needs via the internet or telephone. Useless is an understatement, and worth bearing in mind the next time a compliance officer at a bank which behaves like this lectures you about transparency.

Double standards, half the profitablity !

Local branches of HSBC and Barclays have set up stands in the front of their entrance halls, with a friendly and polite sales person proactively approaching retail customers who enter the branches to conduct counter transactions to see if they can sell them a mortgage with only 5% downpayment and no ‘bureaucracy.’

However, if you are the head of PB relationships at a large brokerage, you are likely to be butting heads with the risk management teams of the very same banks to get orders processed, and if you are the COO of a retail FX firm, you may find that the ‘computer says no’ when you want to open segregated client money accounts to hold client trading capital.

Derivative asset exposures at Barclays in 2015 were £295 billion, which was lower than reported  if netting was permitted for assets and liabilities with the same counterparty, or for which Barclays holds cash collateral.

Similarly, derivative liabilities for 2015 stood at £295 billion. In addition, non-cash collateral of £7 billion was held in respect of derivative assets. Barclays also received collateral from clients in support of over the counter derivative transactions.

Trying to get an account with either HSBC or Barclays would be nigh on impossible for a newly established broker, and quite difficult for a well established brokerage with a large capital base, due to the blanket disdain for FX – the very business that represents the core activity of these very same banks!

Whilst customer service at these British leviathans leaves a lot to be desired, FinanceFeeds recommendation to all FX industry participants is to avoid the Bank of Cyprus at all costs, and not to be tempted to go down the route of third tier banks in less than salubrious regions with lax security.

Lloyds Bank actually came up trumps with our research. The company’s business and commercial banking unit is centralized with operations in Scotland, and is largely a call center-based experience, however the branches are staffed with knowledgeable employees who welcome business, and are able to understand the needs of a complex firm such as an FX company or service provider which conducts a lot of international transactions and needs to be able to have a multi-faceted service including the holding of client assets.

As long as the relevant documents from shareholders are provided, and the company’s past credit record is all ok, the account can be open and running with all facilities operational within a week. During our investigation, Lloyds Bank also showed no animosity toward FX industry participants.

Thus, it is odd that the firms whose largest business interest is interbank FX – Barclays and HSBC are averse to working with brokerages and FX service providers, yet Lloyds, which is not a major FX market participant, is actually very good when it comes to providing service to FX firms.

In our highly advanced industry, however, there must be a better way.

It is about time the FX business, with its sophisticated platform technology, payment services integration and depth of understanding of global financial markets, regulation and conducting business in multiple regions, founded its own payments and banking system, exclusively for our business. This would put an end to the dismal and downright dangerous practices being operated by traditional banks and empower the FX business much further.

I met with Lucian Lauerman, Head of API Business at Saxo Bank at the company’s offices in Canary Wharf, London two weeks ago to discuss many current points of interest, however  during our meeting, the exact 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.

“Recognizing 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.

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?.”“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.

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.

Should a firm which is in our industry that has a banking license, such as Saxo Bank, 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 and a decision that FinanceFeeds would welcome and support wholeheartedly.

Read this next

Digital Assets

Crypto.com secures preliminary approval to operate in Canada

Crypto.com, one of the longest-established crypto platforms, has become the first digital asset platform to sign a Pre-‘Registration Undertaking’ with the Ontario Securities Commission (OSC) in Canada.

Retail FX

CySEC hits IC Markets One with regulatory warning

The Cyprus Securities and Exchange Commission has once again stepped up its fight against unauthorized brokers.

Uncategorized

XTAGE now offers bitcoin and ether trading to 3.6M Brazilian investors

Brazilian financial services giant XP has officially launched its crypto trading platform XTAGE, which was built on major American stock exchange Nasdaq’s trading technology.

Institutional FX

FX volume drops 7pct at CLS Group in July 2022

FX settlement specialist CLS Group today reported that the executed volumes of currency trading on its platforms were notably down in July.

Digital Assets

Web3 startup PIP integrates with Binance ecosystem

Web3 payment provider PIP has announced integration with the Binance ecosystem, which allows the firm to vastly develop and propose needed products and improvements that are worthy of competing with others chains.

Industry News

Celsius $750m insurance claims are fraud, says lawyer seeking EU crypto superfund

“It is an intentional deception in aid of a billion-dollar securities offering.”

Institutional FX

DGCX brokers authorized to provide derivatives trading and clearing services

The DFM is looking to provide multiple asset classes such as; equities, ETFs, equities’ futures, crude oil futures, etc. to meet the growing demand from its diversified base of local and international investors.

Digital Assets

EQONEX leaves “crowded crypto exchange space” amid crypto winter

“The recent extreme market volatility and declining trading volumes have added to the headwinds being felt by exchange operators. We take a realistic view that our exchange will not move the needle for us financially over the near-to-medium term.”

Digital Assets

FTX and Paradigm partner for spreads trading: lower risk, lower fees

“This structured spread trading product is the first that will enable crypto investors to utilize cash and carry trades through FTX and Paradigm.”

<