Foreign Exchange Rate Integrity

Know how to protect your firm from excessive foreign exchange rate markups by banks and ensure FX rate integrity.
Jack BorlandApril 10, 202414 min

Who costs your firm more from foreign exchange rate markups, banks manipulating the market or your indifference?

Recent headlines have covered the mammoth fines levied by the US, UK and other governments against the world’s largest banking organizations for manipulating the London fixing for the most important currency pairs. Fines currently total 13 Billion dollars and now state governments are upping the ante. Oddly enough these activities directly have little or nothing to do with the activities of most commercial firms.

The court decisions handed down against BANK OF NEW YORK MELLON are more relevant because the root cause has been the failure of that bank to provide the FX rate environment promised in their contract for automated FX activities. However this failure was discovered only through the information provided by a whistle-blower. The administrators of the various more than billion dollar pension funds involved had never bothered to check the FX rates applied.

The primary impact on commercial firms and many larger corporations is in the increased pressure on their bank’s FX departments to increase their profit margins. Banks increase their FX margins by ratcheting up their markups across the board if possible. Percentage payouts to sales and trading divisions have been substantially reduced adding a personal dimension to the urge to over-charge clients. Sales forces are cut by ruthless application of gross profit tallies. But the most important contributor to a high FX Markup is the client’s “Indifference” or lack of understanding as to their pricing matrix.

Larger corporations with dedicated FX staffs maintain the competitiveness of their major transactions by using multiple bidders for these transactions either directly or through a third party such as Bloomberg or Reuters. Payments which do not individually amount to much are often transacted through the corporation’s cash management system without any supervision as to the FX rate applied.

Smaller corporations and other commercial entities do not have the available budget necessary to maintain competitive pressures on their bank. Lack of resources cause the company to accept the bank’s protestations regarding excessive FX markup at face value.

As these stories have played out, a number of new services have sprung up to provide FX services on a direct basis to individual and small businesses. Almost all of them emphasize their freedom from the demands of a rapacious banking system. Except of course that is how they also get paid and how they deliver their payments.

It is a certainty that shifting your FX activity to a non-bank service from your bank is going to harm your banking relationship. Maintaining a cost efficient FX activity with your bank is not a difficult undertaking if you have the time, the knowledge and the personnel to devote to establishing this relationship. It is equally important to maintain the FX Rate Integrity® of the relationship.

Most banks providing FX services must markup the rates derived from the interbank FX market to provide these to clients. The markup provides both cost recovery and profit from the activities. The amount of the markup is or ought to be a matter of negotiation.

Organizations such as BLADES INTERNATIONAL, INC. provide the experienced personnel and market access necessary to determine the current mark-up arrangement (or structure) imposed by the bank, negotiate a substantially better regime and monitor the banks activities to ensure compliance. BLADES INTERNATIONAL, INC. provides their clients with the benefits of a combined treasury and FX payments department at a small percentage of the costs normally associated with such activities. Client savings have ranged from 25% to 80% of the bank’s prior total mark-ups.

The technology exists to reduce the operational costs of the bank to the bare minimum, provide the purchasing company a convenient and secure method of purchase and distribution and fix the bank’s markup to a reasonable amount for each transaction. The key to the BLADES INTERNATIONAL, INC. approach is to utilize your existing bank’s technology to create this environment. Usually this approach provides savings on future transactions while maintaining your existing banking relationship and avoiding the headaches involved in moving to another bank or platform. On the rare occasion that the bank is intransigent, BLADES INTERNATIONAL, INC. will introduce another more agreeable bank capable of providing the necessary services and assist in the transfer of FX activities and any other services.

As the final stage of the process, BLADES INTERNATIONAL, INC. will use its expertise and technology to make sure in the future you have Foreign Exchange Rate Integrity®.

*Reproduced with permission from Blades International, Inc.

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Jack Borland, Managing Director at Blades International

Jack has been active in the foreign exchange markets since 1979. He worked first for Algemene Bank Nederland-New York as an FX Sales person, then as an FX Trader, and finally as FX Sales Manager. After two years with Bank of America-New York, as FX Sales Manager, Jack joined Texas Commerce Bank in 1986 as Vice President and Manager of FX Sales. Through mergers Texas Commerce Bank became JP Morgan Chase, where Jack served as a Managing Director of foreign exchange sales, trading and operations until 2012. The Foreign Exchange Sales department evolved from a small scale operation to a major force serving corporate, commercial and financial clients throughout the southern United States. This growth was fueled by attention to the client’s financial needs and the management of their risk exposure at the appropriate level for their businesses. Solutions employed included combinations of hedging instruments and automated systems to help manage the exposures, hedges and payment flows. Jack graduated from St. Joseph’s University with a BA in International Relations and from The Johns Hopkins School of Advanced International Studies with an MA in International Studies. Prior to entering the financial world, he served as an officer in the United States Navy. In 2013, Jack became an Advisory Director of Blades International, Inc.

Jack Borland


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