What do you immediately think of when you hear the words ‘money broker’? Wildly gesticulating men and women, shouting ‘yours’ and ‘mine’ on a bustling trading floor with two phones pressed to their ears?
A ‘money broker’ is a person or organisation that arranges the lending and borrowing of money between banks or other organisations. Put simply, a financial intermediary providing access to markets and products for a commission.
As the Global Financial Crisis (GFC) hit in 2008 and the banks funding from money markets dried up, traditional voice brokers were at the epicentre of information flow, with traders at banks trusting and increasingly relying on brokers as key conduits of information.
It’s now been over a decade of ultra-low interest rates, and in some countries, prolonged periods of negative rates. The impact from the coronavirus pandemic has led to measures being taken by central banks and governments globally, with unprecedented and coordinated action not seen since the GFC. Monetary policy loosening was also extensive in 2019 with a total of 71 rate cuts by 49 Central Banks, according to the IMF. So it’s understandable that a Treasurer or Finance Director may feel identifying new counterparties and opening deposit accounts with them is an onerous and futile exercise, one that for many is a daunting task often bypassed due to the perception that the benefit doesn’t warrant the effort.
During this time, we have seen a significant increase in the number of banks in the UK. Currently, there are 345 deposit-taking banks’. Many of us may immediately think of the increase of recognised challenger banks, such as Metro Bank, but actually there are many less well-known possibilities giving rise to additional considerations beyond just credit rating to consider – such as the capital and liquidity of the bank. Many of these banks are UK branches and subsidiaries of larger overseas banks but, with only one of the largest 10 global banks in the world (by assets) being based in the UK, there are additional factors to consider – such as sovereignty and the level of risk in the investment and loan activities the bank undertakes.
It’s because of the need for depth and breadth of market knowledge that the founders of FXD Capital, Bobby Jackson and Chris Huddleston embarked on a journey to challenge the status quo and redefine money broking. With only a handful of banks appearing accessible and others not making their rates, products or even appetite for cash known, Bobby and Chris recognised the range of rates for a depositor would otherwise probably remain limited relative to the wider market, leading cash managers to compromise on their ‘ideal’ treasury policies in a need to diversify counterparty risk.
FXD Capital is a London-based brokerage firm that specialises in cash deposits and money markets. Having laid down a solid foundation and with hundreds of millions of pounds in deposits already brokered, they are quickly becoming both the ‘go-to’ partner for organisations looking to deposit cash with the good quality banks who have the appetite to take it and are offering a good return.
Their clients are corporates and financial institutions as well as charities, SME’s and local government who the team are proactively helping improve capital efficiencies. They do this by offering term deposits, notice accounts and money market funds from a diverse range of banks and asset managers. In doing so they’re helping their clients manage their cash more efficiently and effectively, from reducing risk to enhancing liquidity and maximising yield. The service they provide is transparent. The depositor deals directly with the bank and the rates they receive are never be worse than what could have been achieved should they have gone direct. Furthermore, they are also remunerated by the banks therefore there is also no cost to the depositor for their service.
Bobby Jackson, Managing Director of FXD Capital said: “There is an unfortunate stigma associated with money broking which has meant treasuries have largely felt they have had very few options available to them to navigate through these prolonged times of uncertainty and minimise their exposure to risk. Our firm was founded on the simple premise to always do right by the client – in our case it’s both the depositor and the bank. The culture of the firm means everyone is motivated and rewarded to create meaningful long-term relationships, one where all parties benefit from a value-added service that’s based on trust, transparency and a fair price”.
In a world and revolution driven by technology and the change in regulation, access to liquidity is now once again democratised and FXD Capital are providing all depositors of size and sophistication, with access to the same opportunities that the largest, most knowledgeable cash managers have come to expect.
The teams approach to doing business is refreshingly straightforward. For the client to understand what their deposit rate should be, they must first obtain rates from comparable counterparties for the same duration. Only then can they truly understand their opportunity cost of using banks offering inferior rates and which, in many cases are a higher credit risk, than they could be using with the support of FXD Capital.
However, the key challenges for a depositor are clear and at times overwhelming. Risk assessing the current banks beyond standard credit ratings, which are updated periodically and often do not address the near-term risks. Devising a robust investment mandate, continually monitoring existing and new bank names, identifying new banks, opening deposit accounts and negotiating competitive rates all pose a challenge and increase bureaucracy for organisations tasked with managing cash.
Justin Meadows, Non-Executive Director of FXD Capital and founder and former CEO of NEX Treasury said: “What FXD Capital offers is simple but powerful and truly unique. What they do for each and every client is bespoke and builds on their years of experience to achieve outcomes that simply aren’t accessible to cash managers who don’t have the same breadth and depth of knowledge of the market and its participants. What’s refreshing to see is the interest of FXD in really understanding their client’s needs as well as the banks funding requirements leading to optimum solutions on all sides. They represent the logical next step in the evolution of traditional voice broking to deliver a powerful ecosystem of voice and electronic trading for cash managers of all sizes, types and levels of sophistication”.
An effective money broker should know each client’s criteria – their counterparty, cash and liquidity requirements. In addition, they should help their clients to proactively manage their counterparties and keep them abreast of what’s happening in the market – such as credit rating changes and changes in appetite for funding. By utilising the correct deposit products with carefully matched counterparties, any organisation will be able to achieve better returns while not compromising on, and perhaps even enhancing, the liquidity or credit quality of the counterparty they are placing funds with.
As an example of this, one of their clients is the Energy Industries Council (EIC), a not-for-profit organisation that is the UK’s largest energy supply chain trade association. Ian Molloy, Chief Financial Officer said: “The Energy Industries Council have an active approach to managing its cash investments and I have found the engagement with FXD Capital to be both refreshing and entrepreneurial. FXD Capital took the time to understand our business and investment requirements, and through their extensive knowledge of the money markets and strong relationship with counterparty banks, have added significant value to our Treasury function. They genuinely have our interests at heart and their experience and focus on providing a relevant, personal and transparent service, makes them a valued partner that continues to serve our requirements expertly”.