FX Week

White-labelling risks in the spotlight

Key among them is that as volume is directed into the hands of fewer banks, concentration risk increases. "Liquidity might be concentrated in slightly fewer hands," said Seth Cohen, managing director in FX at UBS. But, as e-trading has increased volumes in the market, this offsets the peaks and troughs, he added.

Banks white-labelling platforms from the top tier fear their service provider could poach downstream clients to provide them with FX directly. This must be tackled in the initial service contract, said Jake Smith, an associate director at HSBC. "We make sure the sales force knows the long-term goal is we reach these clients through X,Y,Z bank and not directly."

Another fear among banks taking white-label platforms is that they become dependent on one provider for technology and liquidity. However, it is unlikely that users would use more than one platform, said Lars Christensen, co-chief executive of Saxo Bank in Copenhagen. "Once people have got used to a given platform they need a good reason to change," he said. Diversification is made at Saxo’s end, he said by using multiple liquidity providers.

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