This publication recently interviewed FC Exchange, a UK-based firm serving wealthy individuals and firms for their forex needs, an issue in the limelight amid currency volatility.

This publication has been taking a look at some firms that provide foreign exchange services for wealthy individuals and related institutions. At a time when the troubles of the euro have put forex very much back into the market limelight, this is a topic that deserves attention. In this article, FC Exchange, a UK-based firm, talks about its work and the trends it sees in the industry. This publication stresses that it does not necessarily endorse this firm or its services.

A brief overview

FC Exchange is a specialist foreign exchange broker and international payment solutions provider, based in the City of London, with satellite offices around the world.

By adopting a one-broker-per-client service, FC Exchange has differentiated itself from its competitors and built long-term relationships based on an understanding of each of its client's needs. These clients include corporations and individuals, and activities range from one off transactions, including property purchase, to structured, long-term currency exchange that facilitates vast international trade.

We handle currency transactions securely and efficiently, using established and regulated techniques that minimise the risks inherent in foreign exchange. It is our aim to make every transaction as cost-effective and predictable as possible for clients.

We are seeing increased interest from the wealth management community whose clients have foreign currency requirements.  As a consequence we are working with a number of firms, providing tailored currency exchange services and solutions to their clients, as part of their overall wealth management proposition.

Who set it up and what did these people do beforehand?

The company was co-founded by Nicholas Fullerton (managing director) and Martin Steenkamp (financial director) in May 2005.

Before setting up FC Exchange, Nicholas had previously worked for a number of years within the foreign exchange markets. Prior to this he worked in advertising for WPP Group and his major clients included Jaguar, Nike and BP. Nicholas holds a Politics degree from the University of Southampton.

Prior to FC Exchange, Martin worked in the bond trading division at Deutsche Bank. Before Deutsche Bank, Martin qualified as a chartered accountant with Deloitte in South Africa. He then moved to the US with Deloitte, working on energy trading clients, including American Electric Power and Columbia Gas. Martin holds a degree in accountancy from the University of Natal in South Africa.

What was the original business model?

The model was, and still is, very much based on volume of clients and transaction turnover because of the tight spreads and thus margin on which we operate. Therefore to capture and retain custom our model is completely focused on high service levels to ensure referrals and repeat custom, where possible.

What services does FC Exchange offer?

At FC Exchange we strive to provide an individual and specialised currency exchange service, tailoring the most appropriate solutions to our clients’ requirements.

A spot contract is the most basic and popular FX product, and is simply used when currency is required immediately. It enables our clients to buy the currency at the ‘”live” rate on the day, with it then becoming available on receipt of cleared funds.

A forward contract is a great way to manage exposure and is a “buy now – pay later” solution to avoid currency market risk. Clients can lock into a favourable exchange rate today for currency that they need up to two years in the future. All that is required is a small deposit, with the balance required before the maturity date of the contract. Forward contracts are very popular with property transactions which can often take lengthy periods to conclude, exposing clients to the volatile currency market.

Orders enable our clients to pre-specify exchange rates for us to target on their behalf, enabling us to automatically execute a trade should the market move to the appropriate level. A limit order is a target rate that allows clients to take advantage of any sudden favourable movements, whilst a stop-loss order acts as a safety net - protecting clients against any sudden adverse movements.

We also offer a regular payments facility which assists our clients when making regular overseas transfers. This is very common for things like rental income, pensions, mortgage payments or simply topping up bank accounts. Setting up a standing order and providing us with default bank instructions removes the aggravation and worry of making reoccurring transfers.

How does a client get an account? Does the service operate entirely online, or is there face-to-face contact, phone-based dealing, and so on?

Dealing in the foreign exchange market can be daunting territory if you are unfamiliar with it. With FC Exchange, though, we will aim to save you time and money, whilst ensuring our trading processes are clear and straightforward in three easy steps:

Opening an account with us is simple, takes just a few minutes, and is free to do with no obligation to trade, providing you with the facility to simply give us a call and secure the best exchange rates. Upon receiving your registration form, we'll then confirm your identity and undertake anti-laundering verification checks, as required by UK law. If you're unable to meet the accepted benchmark, though, or you reside outside of the UK, you may be asked to provide supporting documentation as evidence of identify and proof of address.

When getting in touch with an FC Exchange broker, we'll provide all the necessary data and market news to help you make an informed decision, answer any questions you may have regarding the market and foreign exchange rates, and assist with your currency purchase. After confirming the exchange rates with you, you'll simply need to instruct your broker on when to purchase on the live market on your behalf who'll secure you a great rate. You'll then receive a contract note from us to confirm the exchange rate, the amount of foreign currency purchased, along with the applicable FCE bank details for trade settlements. You can also transfer the funds to us, prior to trading, for execution when you choose.

Once your funds are cleared and received, we'll send on your currency to the stipulated destination by priority international transfer. Confirmation is then provided by our principle bankers at Barclays that your transaction is complete.

What sort of clients does it target? Where do they come from?

FC Exchange works with over 12,000 clients. These include individuals and businesses, and activities range from one-off purchases to structured, long-term currency exchange.

Over 50 per cent of our business comes from personal referrals. We also work with partner affiliates, including lawyers, accountants, property professionals and other intermediaries, around the world.  Our marketing and business development efforts are reinforced through the provision of expert comment on macroeconomic and currency issues, and our current “We’re not a bank” national press advertising campaign.

What are the distinguishing qualities of this firm?

By adopting a one broker per client service, FC Exchange differentiates itself from its competitors and builds long-term relationships based on an understanding of each of our client's needs.

By beating exchange rates offered by high street banks by up to 4 per cent, FC Exchange provides genuine choice for the consumer and businesses. Since we set up the business in 2005, we have already helped UK clients save an estimated £27 million by offering more competitive rates, and dedicated broker/client services.

Our brand is defined by value for money, clarity and service.  We promise to deal fairly, we promise to be open and honest, and we promise to work on our clients’ behalf to the very best of our abilities. It’s our intention to honour those promises.

Who are its main managers?

Nicholas Fullerton, managing director; Martin Steenkamp, financial director; William Poole, forex strategist; Daniel Wray, dealing director; James Smerdon, dealing floor manager; Amber Lean, head of compliance; Poorna Mandal, head of payments.

Why are such services in demand?

One thing the financial crisis has done is highlight how expensive and unresponsive the banking sector is, forcing clients to become increasingly market savvy and seek out more cost-effective alternatives.

We are able to pass on significant cost savings to our clients as we buy currency at wholesale prices, directly from the market at exchange rates that are not available to most individuals and businesses. We also offer a wider range of currency market tools, and tailor these specifically to fit our clients’ needs.

Simply put, banks are generalists whilst we are specialists - we endeavour to provide outstanding customer service using our expertise and latest market information. By watching the markets on behalf of our clients, keeping them updated as circumstances change, we aim to help them make the most informed decisions for any of their currency requirements.

How profitable is the business?

The 2011/2012 audit has just been completed by Grant Thornton and shows that  turnover is up on the previous year, a trend that looks set to continue given the 2012/2013 figures so far.

As far as clients are concerned, what minimum sizes of deals must they operate in?

Our minimum transaction is £3,000 but we do handle smaller amounts if the transfers are regular.  We don’t charge commission. If you’re transferring less than £10,000 we charge £10 per transaction. If it’s over £10,000 we don’t charge anything at all. There are no other fees. Registration, consultation with our brokers and access to the latest market information is free too – and does not oblige you to execute a trade with us.

How regulated is this business?

FC Exchange is authorised by the Financial Services Authority under the Payment Services Authority 2009 (FSA Registered No. 511266) for the provision of payment services. We lodge substantial collateral with our trading partners and we exceed the capital requirements specified by the FSA for an Authorised Payments Institution.

FC Exchange undertakes thorough compliance and anti-money laundering checks.

Client money is kept in segregated accounts that are totally separate from our own.

What sort of health warnings do you give to clients, given that forex can be volatile?

Traditionally in the past the forex markets were always regarded as being fairly dull and stable, with very limited price deviation. However, over the past five years this has all changed with the financial crisis prompting increasingly erratic and volatile movements.

Clients are certainly now more aware of the potentially huge impact this can have on their wealth and this is a key reason why alternative services such as currency brokers have become more attractive.

Whilst we can’t make the decisions for our clients or offer them advice, we do aim to keep them up-to-date and aware of important market developments and the ensuing implications on their requirement. Each client is allocated an individual broker - their one point of contact whose job it is to actively manage their client’s needs.

Whilst we cannot control the market, simply being aware of what could happen can certainly go a long way.

What kind of trends (in terms of currencies that are popular, etc.) are you seeing at the moment?

GBP/EUR is still our most popular currency pairing, however when the debt crisis began we saw an increase in clients specifically looking to diversify away from euro-denominated assets, a trend which has started to unwind lately. This diversification was partly due to concerns about the security of funds in eurozone banks, but also because of the volatile and unpredictable value of the euro itself. 

In addition to this we have also seen a significant increase in clients purchasing sterling, in line with the huge number of overseas buyers looking to invest in the London property market.

How do you think people regard forex as an asset class and area of business these days?

It is not an asset class as such for our clients, rather something they need to account for when acquiring or disposing of foreign denominated assets. They don’t tend to hold forex if they can help it - we assist in executing transactions rather than any investments. We help with the timely and cost-effective repatriation or migration of funds from overseas investments rather than the management of the investment itself. This is not to say that forex does not have a huge effect on assets or investments though, and forex risk certainly needs to be provisioned for.

How has it changed in the past decade or so?

It is only really in the past decade that the industry has truly come into its own.  This is good news for consumers as they now have many more options and choices than were previously available to them, and wealth managers should also be aware of the same.   It’s not whether we can compete with the high street or private banks; it’s whether they can compete with us in terms of pricing, service, products and flexibility. The growth of the industry has brought about the introduction of the FSA’s Payment Service Regulation which is good for both industry and consumer. The FSA is currently drafting the second iteration of this legislation.