Retail FX brokers beware! Banks not opening accounts for FX firms, meaning client funds and broker capital is at risk

Mainstream banks are continuing to decline the opening of accounts for FX brokerages in which to hold client funds and operating capital, and as a result, brokers are being forced to use 3rd level banks overseas. Fraudsters have cottoned onto this and have been stealing funds from client fund accounts due to the lower levels of banking security offered by such firms

Bank account for FX firm

During the course of this year, 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 has been documented and researched by FinanceFeeds.

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.

A few extreme cases which highlight the risks that face brokerages that are forced to use 3rd level banks have recently emerged, 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.

They won’t accept FX brokers, but they’ll lend money to people with no collateral!

FX and electronic trading firms in London with capital bases of over $500 million and market capitalization figures running into the billions are the bete noire of banks, yet anybody can walk into a retail high street branch of the same bank and walk out with a mortgage secured on a house whose value may go down, not just up, having self-declared a fictitious income and having committed very little personal capital toward the transaction.

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!

In summary, it is worth being very cautious of working with overseas banks that are outside recognized jurisdictions, as the risk of security to client funds is becoming a very real danger indeed.

Read this next

Institutional FX

CME Group reports solid FX volumes, micro BTC futures average 27K contracts

CME Group (NASDAQ: CME), the holding company for CBOT, NYMEX, and COMEX exchanges, has just released its trading monthly review for November 2021, which showed a mixed performance across the group’s six product lines, according to a CME statement.

Institutional FX

PrimeXM’s volume hits new all-time high at $1.23 trillion

Average daily trading volumes across PrimeXM data center locations surged by over a third to a new record last month amid broad growth across different asset classes, the Swiss-founded technology company said today.

Institutional FX

Hedge-fund legend Steven Cohen invests in Dmitri Galinov’s 24 Exchange

24 Exchange, the OTC platform backed by Fastmatch founder Dmitri Galinov, has completed a fresh fundraising round of $14.25 million at an undisclosed valuation. The recent capital injection was led by Point72 Ventures, the venture capital firm of the hedge fund titan Steven Cohen.

Retail FX

5 Tips to Diversify Your Portfolio

Diversification is a popular investment strategy that has been used for decades by many investors of the calibre of Warren Buffet. Traders and investors take advantage of diversification because it reduces the risk of a portfolio and maximizes its returns.

Uncategorized

FX volume at Integral hits a fresh yearly high at $50.6 billion a day

Currency trading on Integral’s platforms rose in November from a year earlier as increased volatility across financial markets led to greater activity on institutional FX venues.

Industry News

Wise planning aggressive North American expansion in 2022

Wise, one of the largest payment technology companies that are looking for different and easier ways to move money around the world, has announced that it would be looking to rapidly ramp up its team and its services in the North American region in 2022.

Digital Assets

Coinbase buys Israeli firm Unbound Security

Coinbase, one of the largest crypto exchanges in the US, has announced that it has bought the company named Unbound Security, an Israel-based firm dealing with the security of crypto transactions, for an undisclosed sum.

Digital Assets

Square changes name to Block, signalling Jack’s interest in blockchain

Square, one of the largest payment companies in the world that are deep into crypto as well, has announced that it would be changing its name to Block, perhaps signaling its increasing intent to delve deeper into the blockchain.

Institutional FX

Cboe reports rebound in FX institutional volumes for November

Cboe’s institutional spot FX platform on Tuesday reported ‎its trading volumes for November 2021, which saw a ‎positive performance as a rise in volatility encouraged more buying and selling ‎of currencies relative to the month prior.‎

<