Darwin’s collaboration and improvisation theory is more relevant than ever in FX! – Guest Editorial
“I have even seen during my visits to China, Chinese brokerages claiming to have a UK based FCA entity even when it doesn’t exist. It has led to a substantial increase in the number of Chinese owned FCA brokerages in London” says FX industry expert Chris Rowe
By Chris Rowe, senior FX industry business development executive and consultant to the market integration and trading software sector.
Chris led the business development operation at Gold-i for several years, and now consults for Kooltra, which provides a middle and back office system for FX trading companies geared towards those trading physical FX and FX Forwards, as well as larger retail brokers and Prime of Primes. Its main product, FXCore, is based on the SalesForce CRM platform which allows access to the SalesForce Apps as well as their CRM and hosting services, He also consults for Muinmos which is a Danish company which offers compliance software on a SAAS model, providing real time compliance and customer on-boarding checks.
‘In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed.’ – Charles Darwin
Over the past few years the FX industry has had to adapt to an ever changing trading environment and a number of trends have arisen.
As regulation changes under the main regulators are making it now more difficult to attract and onboard new clients, brokers are increasingly looking at new regulators to add to their existing set up. For example, an FCA regulated broker will open a St. Vincent or Mauritius entity to provide new clients with different trading terms in order to make themselves more competitive in the marketplace.
This can also help when trading in new locations. There has been an increase in new licences in Africa for example. Both Latin America and Africa have booming FX markets which are largely underserved at present so it is hardly surprising that this trend is happening.
What is interesting is the change in trader requirements. This trend had been visible for some time in markets such as China where Chinese clients are happy to deal with the Chinese arm of a FCA regulated broker even if they do not benefit at all from the protection granted by trading with the FCA regulated entity.
I have even seen during my visits to China, Chinese brokerages claiming to have a UK based FCA entity even when it doesn’t exist. It has led to a substantial increase in the number of Chinese owned FCA brokerages in London.
As the markets contract and it becomes increasingly more difficult to make the same profit from the existing customer base due to the changes in legislative regulation changes, brokers have looked at expanding their portfolios.
This started with the addition of Indices and CFDs and then spread to products such as digital assets and more recently Equities, either as Equity CFDs or as Equities, depending upon the brokers ability to handle these products.
Clearly CFD products are relatively easy for Brokers to offer as they will not need to adapt their platforms in order to cope with these products. Many brokers have already had experience trading Crypto CFDs which were far safer to trade than physical digital assets. Some brokers are also trading full Equities but have had to adapt their platforms in order to cope with dividends and corporate actions.
The other trend that has occurred over the past few years is the increase in prime of prime offerings. One of the side effects of the increase in regulations in most jurisdictions is that Prime Brokers could no longer onboard some of the small retail FX brokers. As such a middle tier of retail brokers appeared in order to service this demand.
All these changes have resulted in a boom in the Fintech sector supporting these brokers. New trading platforms may be required in order to cope with these changes. Products such as the MetaTrader MT4 platform are now looking old fashioned as customer requirements are more suited to the far more sophisticated MT5 solution which could cope with the multi asset requirements of a modern retail broker.
More relevantly, middle, back office and compliance software is becoming increasingly more important to the majority of brokers. If a broker is truly multi-jurisdictional then being able to on-board new clients quickly and knowing that they comply with all the correct requirements with regards to KYC and AML is key.
Sophisticated software is now available to do the work and cut out the human errors that can occur when relying on human intervention. The days of large sales teams and a single compliance specialist within a brokerage are gone.
As Charles Darwin quoted, In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed. This is never more true!
The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.
Image: Andrew Saks-McLeod, CEO of FinanceFeeds with Chris Rowe in 2017.