For FX Brokers in the current environment, opening a corporate bank account to facilitate taking client’s deposits and sending client’s withdrawals can be very challenging. Most banks around the world have adopted a policy of refusing to open corporate accounts for FX Brokers. The rationale behind these policies is simple – it’s inherently high-risk business from the bank’s point of view for the following reasons:
The bank is not performing their Know Your Customer (KYC) process on all of the broker’s clients. This is inherently a violation of most bank’s internal policies, as they are required to perform their KYC process on any person/client holding money at their bank. In this scenario, the Banks would be opening accounts for FX Brokers who would then be opening accounts for their clients who would then deposit money at the bank (third-party deposits.) If the FX Broker were to accept clients that were criminals or politically involved persons, these people would be essentially allowed to interact with the bank, sending and receiving money, without the bank ever knowing who they are. While a lot of FX Brokers are careful who they on-board as clients, other irresponsible & unregulated FX Brokers will accept anyone as a client. It’s practically impossible for the banks to know for sure which FX Brokers are operating with sufficient KYC policies and which are not, so the banks are forced to deny accounts for all FX Brokers.
If a bank does open a corporate bank account for a FX Broker then the FX Broker will be having their clients deposit money at FX Broker’s corporate account held at the bank. At any point, it’s possible for the owner/signatory of the FX Broker’s corporate bank account to simply withdraw all of their client’s money and run away with it. Unfortunately, the FX Broker Industry has been plagued by scam artists operating over the past decade that have ultimately lost or run away with client funds. The behaviour of these “bad apples” has made banks extremely averse to taking the risks associated with having FX Brokers as corporate clients.
While we have outlined the risks involved with facilitating this type of business for the banks, there are two primary ways that banks can mitigate the risks involved with accepting FX Brokers as clients. The first way is only doing business with strictly regulated FX Brokers (such as FX Brokers operating in the United States under the National Futures Association (NFA), in the United Kingdom under the Financial Conduct Authority (FCA), etc.) The second way is to do thorough due diligence on the entire business of the FX Broker and their management team. This usually involves several interviews or in-person meetings.
We do know of banks that have and continue to open corporate bank accounts for FX Brokers on a case by case basis. However, these are typically medium to large sized FX Brokers with substantial businesses, strict KYC/AML policies in place, and competent management teams.
