Why are Tier 1 banks so afraid of direct FX counterparties? Bank of England gives first ever settlement account to non-bank firm

Today marks an absolute milestone in the method by which non-bank derivatives and settlement providers interact with the issuers of currency. Never mind the Tier 1 bank dealing desks, the central issuer of the world’s most valuable currency has just struck a direct deal with an FX provider. Ready for the future? This is what it could and should look like


In Central London, the Tier 1 interbank FX dealership heartlands of the entire world, something of a difficulty that has emanated from just one square mile of the world’s surface and created a liquidity crunch for the OTC derivatives industry globally has been omnipresent for approximately the last two years.

FX liquidity, which is the preserve of just a handful of large banks which maintain the largest market share – those being Citigroup, RBS, JPMorgan, Goldman Sachs, Deutsche Bank, HSBC, Credit Suisse and Societe Generale (not in any particular order except for Citigroup being the largest by far in terms of FX market share) – has become very scarce indeed and has created an environment in which a prime brokerage agreement has become an extremely difficult deal to close for many FX brokerages, large and small.

Not only that, but existing prime brokerage agreements are the subject of continual review by the banks, quite often because the audit and risk management departments of the Tier 1 dealers are always looking at how large a broker’s balance sheet is, $50 million to $100 million being usually the ballpark range that a brokerage or prime of prime brokerage needs to maintain in order to keep an existing prime brokerage relationship with a bank.

This has created more than a degree of nervousness among non-bank institutional liquidity providers, and understandably so. Indeed, so difficult is the maintenance of prime brokerage agreements between the Tier 1 bank and non-bank OTC derivatives business that only a handful of genuine prime of prime brokerages exist to this day.

Today, however, it is not a Tier 1 dealer that has shown its hand in full public light, demonstrating that modernity and the ability to fully encompass the electronic trading and vastly growing deliverable electronic FX industry that is also critical to London’s financial and technology epicenter is vital, but Britain’s very own central bank and issuer of the British Pound, the world’s most valuable major currency.

The Bank of England has today made a milestone step forward in actually disrupting the financial trading ecosystem by issuing a direct settlement agreement to Transferwise, which is an Estonian developed and UK-based peer-to-peer money transfer service launched in January 2011 by Kristo Käärmann and Taavet Hinrikus with headquarters in London and offices in a number of cities including Tallinn, New York and Singapore.

This direct settlement agreement represents the very first of its kind globally, with Transferwise now positioning itself as the first non-bank payment service provider to be granted a settlement account with the Bank of England’s Real Time Gross Settlement (RTGS) system.

The Bank of England opened up its RTGS system to applications from non-banks last summer, and it’s a sign of the health of London’s fintech scene that Transferwise has taken advantage of this, and considering that the Bank of England has garnered the rather unflattering term ‘The Old Lady of Threadneedle Street”, this development paves the way for further direct settlement agreements and places the Bank of England as a major innovator and perhaps a provider of a solution to the current nervousness displayed by traditional dealers, bearing in mind that this is a route direct to the issuer.

Settlement costs, clearing costs and trade reporting bureaucracy are three tenets of current concern in London, and most certainly among market participants that have any reason to interact with MiFID II compliant European regulated marketplaces, OTFs or OTC derivatives brokerages. By establishing a direct settlement route, the Bank of England is paving the way to reduce costs, and whilst TransferWise is a deliverable FX provider, the principle by which it interacts with the Bank of England would be similar to that of an institutional FX firm.

Sucden Financial, for example has an eFX division which provides liquidity to non-bank retail FX firms, and the company also has a deliverable FX division operated from within the same offices, hence there is no reason why companies like Sucden Financial cannot strike up direct RTGS relationships with the Bank of England, this being an example of how potential relationships between the Bank of England and the OTC world right down to retail brokerages could be structured.

Once again, London’s pioneering mettle is shown and whilst the mainstream press this morning in the City views moves like this as Brexit-orientated disparity, FinanceFeeds views it as a potential solution to the European Union’s current MiFID II driven clampdown on leveraged products, and therefore a route that British firms should pursue.

Read this next


BlockDAG’s Impressive 30,000x ROI Potential and Moon-Based Keynote Captivate Solana And Bitcoin Cash Crypto Investors

Discover BlockDAG’s impressive moon keynote launch and its promise of a 30,000x ROI that is drawing investors from Solana and Bitcoin Cash.

Market News

This is it, the USD Strength has Come to an End

In the aftermath of Israel’s retaliatory strikes in Iran, the currency markets have entered a phase of heightened volatility, reflecting the intricate interplay between geopolitical tensions and economic fundamentals.


BlockDAG Leads DeFi Innovation with $19M Presale, Overshadowing Cardano and Binance Coin With 30,000x ROI and DAG Structure

Learn about BlockDAG’s growth in its presale, surpassing $19M, and its impact on the DeFi landscape, overshadowing movements in Cardano and Binance Coin (BNB).


BlockDAG Offering a Fresh Take on Meme Coin Development Amid Solana’s Challenges and Floki Inu’s Price Fluctuations With 30,000x ROI

Dive into how BlockDAG’s innovative presale, low-code platforms, and potential 30,000x ROI, outperform Solana’s technical hurdles and Floki Inu’s market predictions.


BlockDAG Excels With $2.2M In Miner Sales And Moonshot Teaser, Overshadowing Litecoin’s Rally And Dogwifhat’s Market Highs

Explore how BlockDAG’s $2 million Miner Sales & Moonshot Teaser eclipse the Litecoin price recovery and the Dogwifhat all-time high.


BlockDAG Leads Top 6 Cryptocurrencies to Buy in 2024 with a Potential Price Surge to $10 Leaving Cosmos, BNB, and Ethereum Behind

Discover the top six cryptocurrencies in 2024, including BDAG’s remarkable growth potential, BNB’s durability, Cosmos’ connectivity, and ETH’s eco-friendly advances.

Retail FX

Weekly Roundup: Prop firm arbitrarily accounts, Interactive Brokers’ CFDs in Japan

FX, Fintech and cryptocurrency markets have been bustling with activity over the past week, as is often the case. Keep yourself informed and ahead of the curve with a curated selection of crucial stories and developments that are most relevant to those engaged in the markets.


BlockDAG Redefines Crypto Mining as Presale Tops $18.5M, Outshining Ethereum ETF & Dogecoin Dynamics

The recent approval of the first Ethereum ETF in Hong Kong underscores a significant advancement in the cryptocurrency’s mainstream acceptance. While Ethereum continues to attract institutional attention, the Dogecoin price prediction suggests a possible resurgence, despite its current undervaluation from past highs.

Digital Assets

Bitcoin halving is done: ViaBTC mines historic block 840K

The Bitcoin network has confirmed its fourth-ever halving block, mined by the cryptocurrency pool ViaBTC, according to data from Blockchain.com. This significant event in the Bitcoin ecosystem reduced the mining reward by half, a deflationary measure occurring approximately every four years to control the issuance of new bitcoins and curb inflation.