“Mind The Gap!” – The life and times of a man on the move Episode 25

In this weekly series, I look back on what stood out, what was bemusing, amusing and interesting during my weekly travels, interesting findings within the FX industry and interaction with an ever-shrinking big wide world. This is purely observational and for your enjoyment.

Monday/Tuesday: Can some light be shed on the dark world of payments?

Payment processing to and from retail FX brokerages has become a very difficult business and many brokerages now find themselves completely stumped when it comes to selecting and working with external entities that can convey client payments safely and lawfully to client accounts held by brokerages and back to clients in the case of a withdrawal.

I personally have avoided all aspects of the murky world of payment processors that are specific to retail FX ever since a senior manager at a large merchant services firm told me some five years ago that the vast majority of these ‘specialists’ have a dubious background and are on the radar of the merchant services providers – notably Visa and Mastercard – to the extent that if just three chargebacks occur, Visa and Mastercard would remove their merchant services agreement.

Many of the payment services firms that aim to attract business from retail FX brokerages have their origins deeply rooted in unpleasantness. Far from being the plate glass entities respected by Tier 1 banks that service global e-commerce entities such as Amazon and Airbnb, all of which require enormous and all-encompassing due diligence and shy away from high risk business such as leveraged margin FX being provided to a retail audience by tiny, undercapitalized offshore brokerages, the vast majority of the payment providers that are available to FX brokerages are swarthy, leather-jacketed former gambling or adult entertainment affiliates with the social responsibility of a tomcat and the business acumen of acclaimed Victorian writer Israel Zangwill’s ‘Schnorrer’ character.

The only difference is that today’s payment processors would not be allowed onto the streets of London as per the aforementioned Victorian villain featured in the ‘King of Schnorrers’ novel.

Instead, they flog their dubious wares at trade exhibitions in Cyprus and across the Asia Pacific and Middle East, leaving small to medium sized brokerages who would ordinarily find it very difficult to secure a contract with a large payment channel absolutely bamboozled and in many cases concerned as to what they are forced to work with.

In Cyprus this week, I met with a former FX industry technologist who recently sold his business and is now beginning to dedicate his time toward assessing how to provide a transparent and centralized market place and operating platform for payment services which removes the immoral affiliate-based nature and lack of credibility from the reach of brokerages.

If this system works and gets any traction, I am quite sure it will be a welcome tool among brokerages and bona fide payment processors alike.

The reputation of the payments sector has been ruined by its association with binary options and other low-end enterprises, as well as its structure in which there are third and fourth parties involved in an affiliate-based chain” said the industry professional I met this week.

He continued “If there is to be any future in it, we need to find a way of giving power back to the merchant. It used to be OK simply cutting out payment processors and going for bank transfers, but that was fine when banks would accept client money accounts for retail brokers, but they won’t anymore.”

“Back when I worked at a very large retail brokerage in Cyprus 15 years ago, we used to process hundreds of thousands to major Tier 1 banks for client deposits but no bank in the world will do that now so yes in ideal world that would have worked, but given today’s circumstances we need Mastercard/Visa without all the mess the payments firms that surround the industry have made.”

“In my opinion, a system based on AI needs to be developed in order to generate right solution” said the developer. I mentioned the plethora of websites that have created democratized solutions for providing the best insurance quotations or credit card deals in the UK such as Compare The Market or Confused.com, however he quite rightly said that although that works well for general insurance products, sites like that would be tainted by their operation that relies on referrals and this would be a problem for payment solutions in FX. “We will be steering away from referrals” he said.

I mentioned that in that particular sector, you never see technology firms entering the arena and actually providing payments platforms which are paid for by software licensing, and the only schemes available are affiliate schemes. I look forward to seeing the first provider to enter that space and offer an off-the-shelf SaaS solution, to which the executive I met agreed. “Currently everyone sits on volume and is working on partner agreements” he said.

“It’s not logical to do that if you’re a technology provider. There is no way anyone can grow like that. Firms providing payment services need to have the same interest as brokers. We are a technology industry and should behave like one. It is more sustainable for brokers to be able to pay per package whereby for example a broker gains an agreement which is controllable via one centralized platform on a fixed fee, with let’s say 15 PSPS. Of course the monthly fee would be a higher fixed fee than would be paid under affiliate deal but you gain far more accessibility long term.”

Quite right. Currently, KPMG in Cyprus is looking at supporting these types of solutions for outsourcing as professional services catering for online business around the world. “I think we can change or create value or solve the payment problem from small merchants to enterprise scale” said the developer.

In this sector, one never hears of the large external firms entering the market but they are doing it quietly, they are assessing it to see if high risk business can be done well and correctly. AI takes out the preferential treatment that seems to proliferate the payment sector.

It is really only sensible to make applications via PSPs direct, because any platform that does it via the platform has to have referral agreements. Screening affiliates and only connecting to the source of the transaction is no longer an option going forward. My conversation last week focused on the will to launch a platform with no affiliate agreement and instead operate a data platform.

“We are doing this not only in Cyprus but also across various other regions. Our executive in Montreal spent 15 years at Bank of Canada and knows the criteria required to work with Tier 1 banks” said the developer.

“Currently the payments is a dark business and you never know what tier you are on. Most gateways are outmoded and there is no business intelligence solution available.

It is quite simple. The only way to change the way that payments are handled and managed is to remove the dodgy reps and the cartels of small-time former binary options affiliates that are the subject of derision at trade shows and that most brokers are afraid to work with but feel they have no choice.

The only way to do it properly is to institutionalize it and make it into the enterprise software business that it should be. Once this sector gets into the realms of KPMG and Accenture and is used for solutions architecture in large companies and therefore is associated with the professional services and technology outsourcing divisions of large global audit firms, nobody will have any issue with it in our industry and the whole payment process will become far more open. More to follow soon!

Wednesday: Volvo, IKEA, The Eurovision Song Contest, Lapland and … FX

At last, Sweden, one of the most highly respected societies on earth, is looking to approach the retail FX business.

This Wednesday, I spoke to a representative of a newly established firm which can only be welcomed into the global electronic trading sector.

In general when thinking of Sweden, images of finely dressed, highly educated, diplomatic and forward thinking people that the world looks to for social inspiration come to mind.

Now, these attributes are able to be applied by retail traders to FX brokers as the first global brokerage to approach a retail client base is about to establish itself in Sweden’s capital city of Stockholm.

Looking at this video from three years ago, it is clear that the Swedish way of doing everything including transport and town planning is democratized. If Gothenburg starts looking like this, I expect a deluge of visa applications!

Speaking to a management consultant involved in the establishment of the new FX firm, I was told “This is a young firm intent on doing things the right way. They have hired us to help with operation to employ what we consider to be best practices when it comes to handling of clients, funds, orders, IB partnerships and other important operational factors.”

My reaction was of course one of great hope and expectation, with the consultant explaining that this new company is set to position itself as an antidote to the less than salubrious business practices of some of the small to medium sized brokers in lax jurisdictions.

I conveyed my opinion that retail clients do not mind paying for good service, good technology and proper leadership. The company will welcome clients and critique to its offices to show how they operate from the inside. Very Scandinavian indeed.

Scandinavian business ethos is all about that sort of transparency and being on same level as customers. It is like that in all their industry . Volvo cars do things that way too by involving customers and making new technology that puts control into hands of customers rather than dictating to them.

“Interesting that you mention Volvo. That’s actually an image they want to convey. Look at top Scandinavian companies. They pride themselves on consistency, delivering what they promise” said the consultant.

Absolutely they do – and with extremely high standards with massive protection for customers.

“We were also noting that Sweden is typically a neutral country and handles most issues very diplomatically. Brokerages that establish there using Swedish values can be sure that by not taking any sides in anything, customers have a far more real market and better experience, as this is extremely unusual when it comes to over-the-counter brokerage” he said.

My experience is that this ethos gets applied to society and industry and as a result the country is producing top technology to make life easier and better and the government encourages it. So considerate is its society that Sweden has for the last 60 years had a government-controlled alcohol monopoly, meaning that it is impossible to purchase any form of alcoholic drinks from anywhere except the state-owned ‘Systembolaget’ stores, which have severely restricted opening hours and strict prohibitions on how alcohol is sold, yet this is totally supported on grounds of morality, safety and health by over 80% of the population. Imagine that in Cyprus or London!

I will be reporting from Sweden in the New Year in a full and detailed insight into the new direction from a top quality nation.

Thursday: ASIC is on the ball… again.

The fish rots from the head down, so says the extremely unpleasant phrase.

Australia’s authorities have demonstrated their abilities once again, this week by putting an end to the transaction facilities of Berndale Capital and its operator, Stavro D’Amore.

Yes, these types of actions aren’t exactly out of place among regulatory circles, but it’s ASIC’s ability to thoroughly investigate who should and who should not be in charge of a firm that counts here. It is equally important that my good colleagues across the world in this industry who work and strive hard to do things properly do not have to rub shoulders with those who mean harm, hence ASIC did a very good job of weeding out the ne’er-do-wells which can only be a good thing for the sustainability of the good guys, which is thankfully the majority.

The freezing of Mr D’Amore and his company’s assets represents a follow on from the banning of Yossi Ashkenazi and his retail FX firm AGM Markets from providing financial services in Australia for 8 years.

What is the connection? Well, for those, like me, who have a very long memory, the association goes back over ten years to a period during which Yossi Ashkenazi operated the Australian brand of a host of brands owned by the same collective shareholders as Dealserv, which operated 4XP and SkyFX in Israel and Cyprus respectively, of which Israeli citizen Yossi Herzog was an original figure along with fellow Israeli Lee Elbaz who both worked at 4XP. Lee Elbaz who is now in the frame for binary options fraud prosecution in America.

Almost three years ago, we reported that just one week after the Australian Securities and Investments Commission (ASIC) reported that retail FX brokerage FXTG had requested voluntary suspension of its AFS license, its sister company SkyFX became the subject of a mandatory license suspension by CySec.

SkyFX is based in Cyprus, and was established initially as a brand name and trading style of Trademarker (Cyprus) Ltd which alongside SkyFX, operates Capital Option, its binary options brand.

FXTG and SkyFX were established initially as subsidiaries of Dealserv, which was the service provider that operated the unregulated and now defunct retail FX trading brand 4XP (formerly Forex Place) in Israel.

At the time of the demise of 4XP, the owners of the company sold Melbourne-based FXTG and Cyprus-based SkyFX as going concerns to Aviv Talmor, who then operated them alongside his existing brand UTrade which has been cited for alleged ponzi scheme activity by Israeli officials. Aviv Talmor was jailed in 2016 after being arrested on entering Israel.

Under a 2016 bankruptcy plan for UTrade, Mr Talmor was to make monthly payments of $1000 to the insolvency fund which goes nowhere near covering the $12 million of investors’ money had gone missing from UTrade. He went back to jail again this year after a court proceeding determined that he had indeed paid virtually none of the required money into the fund over the past two years.

The decision by CySec to suspend the license of Trademarker, according to the ruling issued by the regulator, has been brought about by the fact that the company’s alleged violations of the Cyprus securities laws may possibly endanger the Company’s clients’ interests and generally the smooth operation of the capital market.

CySec in February 2016 stipulated that SkyFX had 15 days to comply with provisions set forth by CySec, and during this period cannot provide or perform any investment services or activities, pursuant to section 26(5) of the Law. The firm must, if existing clients so wish, without being considered in violation of section 26(5) of the Law, close all open positions in relation to clients’ contracts, or of its own, on their maturity date or on an earlier date if the client so wishes and return to existing clients all of their funds and profits earned.

Back in 2009, Dealserv,  the company which provided services to retail forex brand 4XP (formerly Forex Place) looked to establish a regulated presence in a jurisdiction with a high quality regulatory structure. Initially, London was chosen, and the firm rented an office on Bishopsgate, in the City of London, and obtained a license from the Financial Services Authority (now the Financial Conduct Authority) in London.

The company employed a compliance officer, and operated the firm with skeleton staff for a number of months until its management, led by Yossi Herzog, decided to move the operations to Australia and hand responsibility to Yossi Ashkenazi, a former salesman for Herbalife.

The firm opened operations in Melbourne, renounced its FSA license in London and gained an ASIC license. Mr. Ashkenazi worked very closely with the management team at 4XP and Dealserv during that particular time.

Just a matter of months later, Dealserv recruited Jonathan Frankenstein as Chief Compliance Officer, based in Israel at Dealserv’s head office. In 2011, Dealserv established SkyFX under the commercial name of Trademarker, in Limassol, Cyprus, and appointed Mr. Frankenstein as CEO.

Mr. Frankenstein reported directly to 4XP management until such time that 4XP and Dealserv ceased its operations, owing several million dollars to clients, at which point FXTG and SkyFX were purchased by Aviv Talmor, owner of UTrade.

Mr. Talmor appointed Stavro D’Amore as CEO of FXTG whilst Mr. Frankenstein remained CEO of SkyFX until May 2015, when he left to become Executive Director of AJF Financial Services in Cyprus.

Mr. D’Amore left the firm resigned from his position as CEO in April 2015, the firm bringing in an interim CEO by the name of Elias Morales who stayed less than a month.

After the redundancy of most of the staff at FXTG, which included PR Director Tanya West (formerly of SpotOption) and six account managers, Global Vice President Rafael Bar-Lev (himself now under scrutiny for binary options fraud) was pegged to relocate to SkyFX in Cyprus, however since then the firm has bitten the dust permanently.

It may well be that, after several years of smoke and mirrors, the end of the road is nigh for these firms and the unitary organization of disreputable, semi-literate plebeians behind them. Well done ASIC.

Friday: The holidays are here!

I may be one of the 60% of the world’s population for which Christmas does not feature, however the vast majority of the world’s important and highly sophisticated regions for business and society have been the result of hundreds of years of refinement by those who do indeed enjoy a week of festivities in late December, hence our business and its leaders will likely rest for a few well deserved days.

This year has passed so rapidly that it only appears a few weeks ago that the MiFID II rulings were introduced on January 3, 2018, and almost unbelievably, here we are a year on.

On Friday, most of the conversations I had were with hard-working, dedicated executives finalizing their important tasks before taking a well deserved break over the festive period with their families and friends, and observing it from the outside it certainly always appeared a very nice and eagerly awaited holiday period.

I would like to wish you all a very happy holiday, and that the professionals that are committed to their work and the constant evolution of this business – let’s be fair, the electronic trading industry is at the cutting edge of the innovations for the financial services sector – can all look back on the quality of their year’s work with pride.

Happy Christmas and a very happy and prosperous New Year to you all, and I very much look forward to working with you all in 2019!