David Woolcock
David Woolcock

The new landscape in Foreign Exchange

David Woolcock, Director, Business Consulting at Eurobase Banking, tells us why now, more than ever, integrating treasury and trading operations is helping banks and payment firms navigate the new landscape.

For more than 30 years, Eurobase has been providing world-class, reliable, integrated Treasury and Trading solutions to banks and financial institutions worldwide. We asked David Woolcock, Director, Business Consulting at Eurobase Banking, to tell us why now, more than ever, integrating treasury and trading operations is helping banks and payment firms navigate the new landscape.

Has the recent pandemic created a new normal?

We are facing a new landscape for the foreign exchange market. Certainly, it is the first time we have had to contend with global lockdowns and transition to a scenario where the majority of traders are having to work from home. Going forward business continuity planning will have to include homeworking in this new reality. While regulators have shown understanding for the problems the transition has put on firms, they still expect the same principles and rules to be followed that have been developed during the recent evolutions in regulations. Part of this evolution was a more robust examination of Operational Resilience and this will now be even more encompassing than originally thought. So, as we complete this transition, it may well be the time to build new work processes around one authoritative data source and rethink some of our methods of working, making sure inefficiencies in a siloed world are eliminated.

What impact has the new landscape had on the Electronic Trading industry for Foreign Exchange?

The onset of the pandemic brought with it increased volatility, which led to increased volumes going through the market. A majority of firms have had to cope with all, or a significant majority, of their traders working from home. This had led to a requirement for traders having complete ‘at-home’ workstations. If these had been incorporated into business continuity planning, they would have been regularly tested and verified. For others, the shift to homeworking has caused multiple problems with only partial remote login available which has likely impaired the ability to safely service customer requirements. For many of these firms there is now a serious consideration as to whether their disparate systems and platforms need to be replaced with a more integrated approach. What is certain is the pandemic has increased volumes traded through single bank platforms and these will now be seen as a must-have by all sell-side participants looking to retain and increase their customer franchise. Furthermore, some participants may look at the feasibility of separating the front office from the back office and look at a “Treasury Bank in a Box” approach that caters for more functionality than a traditional TMS.

Expert Opinion
A majority of firms have had to cope with all, or a significant majority, of their traders working from home

Why would integrating a treasury management system with trading functionality help? 

For many firms, the pandemic has revealed sub-optimal deployment of solutions; these are not ideal for the new reality of needing a more holistic view of their affairs within one environment to aid working from home and still fully servicing their customers. So, for many the model, if not broken, is flawed. In this regard it is a big advantage to have an integrated Treasury Management System that incorporates full electronic access to the banks current positioning, and electronic pricing tailored for the customer (full sales desk support), a single dealer platform for customers alongside integrated chat and dealer intervention tools, and with everything running in real-time including full credit checking. It also means you have a single data mart which streamlines the data flow to downstream systems. So, a trader can log on to a single system that will support the full workflow required to effectively service customers in their preferred manner.

What are the benefits of having an electronic payments module?

Servicing customers is the most important activity for FX trading desks. The uninterrupted defeasance of FX risk is essential to support trade and capital flows; the provision of FX pricing is often an extension of the cash management and payments business of a bank. For an asset manager looking to book block trades a single dealer platform is often one of the more suitable methods. However, for a corporate looking to book an FX trade to make single or multiple payments, it is a different workflow but with many similarities in the two situations such as access to real-time rates, etc. We have learned from the rise of the FinTechs that giving customers looking to book an FX trade to make a payment a fully tailored ‘ePayments’ platform eliminates duplication of processes. It also differentiates the service provided by making available to the customer tools to aid their own requirements such as viewing upcoming payments that are hedged and payment authorisation processes. This is a great benefit to customers who are themselves having to cope with working from home.

Expert Opinion
Servicing customers is the most important activity for FX trading desks

What does regulatory reporting look like in such a solution?

Having a regulatory reporting platform integrated into the solution aids timely reporting and saves the embarrassment of explaining to the authorities reporting delays. It also brings other benefits in having regulatory compliance functionality imbedded. Under MiFID II, Dodd-Frank and other global regulations firms can be asked by a regulator to reconstruct trades or client orders with tight deadlines often only 72 hours. Having the ability to do this reconstruction of trade/order details, conversations, emails, meeting minutes, etc, in one place in an integrated scenario eliminates the delays from having to interrogate multiple siloed platforms.

What is the optimum deployment for the new landscape?

Some would argue that cloud deployment is optimal, but for many this is not feasible or cost-effective. It is, therefore, prudent to ensure that both cloud and fully deployed options are available and fully support circumstances such as working from home. It is also to be noted that customers are questioning their counterparts about the ability to offer a full-service during events such as a complete lockdown. Therefore, it is for vendors to be asked the same questions as to if they can supply a full service and support package in such circumstances.