No more being turned down by the banks! The first dedicated banking solution for the FX industry is here

Without question, one of the major concerns for many retail FX brokerages in today’s environment is the means by which client funds are held at segregated bank accounts.

It is clear that whilst the vast majority of the FX industry agrees that safe custodial facilities are very much a necessity, Tier 1 banks across the world have, for quite some years, been reluctant to offer bank accounts to any retail FX or CFD brokerages, a dynamic that has created tremendous difficulty for many firms.

In essence, Tier 1 banks in top quality jurisdictions including US, Canada, Britain, Singapore and Australia, as well as in regions in which a high proportion of the national economy relies on FX such as 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.

Research by FinanceFeeds some time ago involved a case in which a retail FX brokerage have had several hundred thousand dollars stolen by fraudsters due to having to use a bank in a third tier region which had a far lower level of security than the main banks, 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.

So, bearing in mind the somewhat hypocritical direction that the Tier 1 banks have taken, in that our industry provides their Prime Brokerage desks with the majority of its core business, trading the global markets being a priority over banking for all of the plate glass headquarters of Tier 1 dealers in Canary Wharf, yet the commercial banking divisions of the same banks will not give brokers bank accounts.

Why, in that case, has nobody from the FX industry picked this up as a matter of importance and founded a bank, with all of the correct licenses and which adheres to the correct banking procedures, purely and specifically for brokerages to use for their operational and client funding accounts?

FinanceFeeds has even spoken to some electronic trading companies that have banking licenses, such as Saxo Bank, which not only has a banking license and global coverage as a service vendor to brokers, but also has its own payments company and proprietary platform, yet this has remained silent ever since our conversation over four years ago.

Today, however, this is set to change, and one particular forward looking company in our industry has taken the lead on this, and is preparing to acquire a digital bank, complete with full banking license and operational functionality, purely with the intention of providing banking services that are dedicated to the requirements of FX brokerages globally.

The service will be completely operated separately the business of its parent brokerage, however as it is run by a brokerage, it will be the first completely broker-agnostic digital banking service globally which serves the FX and electronic trading industry.

In the advent of such a vital move, FinanceFeeds today spoke to Husam Al-Kurdi, CEO of Squared Financial in Cyprus, who is leading this initiative.

Mr Al-Kurdi is an esteemed executive in the FX industry, having spent two decades working in the financial and banking industry during which time he has acquired an international reputation for developing and managing sophisticated trading companies. Prior to his appointment as CEO of Squared Financial, Mr Al-Kurdi was Head of Business Transformation in ADSS, joining the company from Swiss company MIG Bank prior to its acquisition by Swissquote, where he was head of e-trading.

How did SquaredFinancial arrive at the decision to look toward acquiring a digital bank and being a go-to provider for retail FX brokerages in terms of having an industry-specific bank which is tailored toward the FX industry?

One of the main problems facing existing and new brokerages is the setting up of bank accounts to manage payments, in and out, of the business.  Without transparent and efficient payment solutions brokerages struggle to provide safe and secure services and meet regulatory requirements, so this is a major issue.

Most tier 1st tier banks no longer offer services to brokerages.  This has been down to a number of factors, including changes to international regulation, such as the introduction of Basel III, data security and identity verification and compliance procedures; poor practices in some brokerages which have increased risk for the banks; and a lack of resources and expertise in the tier 1 banks to understand the brokerage model.

This has pushed brokerages to use 2nd or even 3rd tier banks which often require brokerages to use a complicated series of middlemen to be able to access the payment services they need.  This is not good for clients or brokerages or regulators, so there has to be a better answer.  

At SquaredFinancial we are in advanced negotiations to offer a digital banking service specifically design for brokerages.  We have taken the view that as an experienced broker we know the sector, the requirements and the issues and so are very well placed to be able to structure the banking services other brokerages need.  We have the knowledge and ability to cover KYC and AML requirements in the sector and if brokerages can access high-quality banking services, this will help improve the image and reputation of the whole sector.  

Operating a service on these lines would give brokerages a necessary solution to what is becoming a protracted range of options, and in some cases stop them being exposed to risk by not having to use banks in third tier regions.  It would be interesting to see some references and additions as to what SquaredFinancial’s digital bank would look to offer to brokers to solve a huge issue that will be welcome in the market as a separate part of the business to the Squared Financial brokerage.

A SquaredFinancial digital bank would necessarily be ringfenced from the main business.  It will be established in a leading jurisdiction so that it has the regulatory strength to operate across multiple markets.  It has to be able to provide direct and transparent access to payment providers along with a full range of required banking products.  The operational knowledge we have of the sector will allow us to manage the risk and still offer the services other brokerages are looking for.

In a number of different banking areas we are seeing digital licenses being used to provide this type of specialist service.  It is a very positive development which we want to take advantage of, and at the same time solve a major issue, for many brokerage businesses around the world.  It will reduce their costs, increase security and cut out a third party fraud.

Let’s also look at the increasing asset class range that Squared Financial is adding to the platform, and how the firm continues to add direct market access trading instruments to suit an ever demanding client base, plus attract higher end traders with multi-asset trading facilities and how this will be implemented, as well as how pricing and liquidity is conducted with SquaredFinancial allowing this to be possible and cater for discerning clients.

We are creating services based on a view that many current clients and almost all future clients will be looking for fast, easy and value for money access to a full range of investable products – a one stop solution for trading.  To provide this service we have invested in technology and partners to create and manage liquidity.  This work has been alongside the development of a very experienced team of market professionals who can put together the products with the pricing which traders want.

We take the view that we will continue to see trends across the markets which we need to be able to quickly meet through the introduction of good quality products.  We had some alternative stocks in 2019, oil and gold so far this year.  Brokerages always need to be able to respond to the trends which is why we put so much emphasis on the way we design, the speed we develop, and the quality of the products we bring to the market.

For us fintech is at the core of the business.  At all levels, technology will be fully integrated to provide global access to fintech products and quality trading solutions with the highest levels of security.  We want to give traditional and new generation investors new, simple but professional access to international markets.