What it means to manage risks as a broker: summary from panel discussion at the iFX Expo Asia

Author: Albina Zhdanova

Having hosted a panel discussion on risk management during the recent iFX Expo event in Bangkok, and after several conversations with amazing experts, we’d like to share some thoughts and insights on risk management for brokers in 2024 and beyond.

#1 Risk is a spectrum

Risks for brokerages start with onboarding and checking their clients’ identities and end with always having a backup of their systems. Unfortunately, to be successful and resilient to change, you must tackle them all, as the consequences of failing to protect against risks can be very costly.

Where should brokers begin? The first step is to ensure you have robust backups and recovery procedures in case something happens. Make yourself really ready; don’t just run a backup copy and pat yourself on the back. Ensure those backups are recoverable, check that they’re stored separately and won’t be lost with your primary infrastructure, and ensure they’re scheduled to run frequently enough.

Tip: The Trade Processor liquidity system also has built-in backup tools. Brokers can choose secondary liquidity providers with Backup LP functionality to prevent a trading disruption should the primary liquidity provider go down or become unresponsive. There are also options to backup configuration that you can read about in our user guide, or chat with your account manager or the TFB support team. If you’re not a client yet, please email us at sales@t4b.com for more information.

#2 Most, but not all, of the processes can be automated

Your most significant investment should be in the right people overseeing risks. Automation is a great tool, but it is not a miracle worker. There are many areas of a brokerage’s work where AI cannot make an informed decision, and broader knowledge and human input are still required to make the right choice. So, strive to automate as much as you can, but don’t use it as an excuse not to keep your finger on the pulse.

Tip: We have lots of valuable articles on automation on our company’s blog. Check out our guide and tips about automating a brokerage, and feel free to start your automation journey today. Let us know if you have any questions or need help.

#3 Don’t be afraid to automate sensitive processes

Yes, we just said that you can’t automate everything fully, but you can automate much more than you think. When it comes to things like KYC and client onboarding, many TFB clients and experts, including the panel discussion participants, do not feel comfortable outsourcing these jobs to technology.

We completely understand why, but the truth is that the market has many excellent automated services. Reputable companies have tested these services and have proven their effectiveness. You don’t need to trust the software unquestioningly, but you shouldn’t try to protect your critical processes from automation too much. There is a fine line between employing personal experience and expertise and missing out because you’re afraid to make a mistake caused by technology. Both human-led KYCs and automated ones do not give a 100% guarantee, so why not try and make the most of the resources you have at your disposal?

Tip: If you’re a White Label or Main Label broker looking for help with KYC for your business, TFB can help. We offer comprehensive support throughout the company formation process and will help you pass the trading platform’s KYC. 

#4 You are a broker, not a risk management expert

The sooner you start working with third-party companies to help advance your risk management strategy and processes, the better. It’s beneficial to rely on someone's experience and sleep well, knowing it’s all taken care of. Of course, some things can be done in-house, and some brokerages even develop these systems from scratch.

The problem is that you are a brokerage rather than a risk management professional. Nobody knows your business as you do, but a risk management-focused company works with many brokerages similar to yours in one way or another.

Time is a finite resource; anytime you can rely on a trusted partner to deal with something they are more knowledgeable about than you, it is a matter of opportunity, cost, and efficiency. Would you rather spend 20 hours working on a strategy that would take an expert 4-5 hours? Or would you like to dedicate those 20 hours to speaking with Tier-1 clients and driving business? Choose where your focus is, and lead with that.

#5 How you choose a technology provider matters

With an abundance of technology providers out there, you need to pick the right one for your business. Working with someone in your brokerage is a considerable risk and a risk remover. An experienced and thoughtful provider will make your life easier and better, and a less reliable one can turn it into a nightmare.

During the selection process, always start with background checks: how long they have been in the game, what areas of expertise they have, how many clients they are working with, and what the market says about their work. Ideally, you want someone who’s been in the industry for a while but has remained innovative and flexible enough to gain the perfect balance of knowledge and progressive vision. Many decisions that a brokerage makes today will affect it for years to come, and those decisions need to make sense in an ever-changing environment. We’re not saying your technology provider has to be a visioneer, but keeping an eye toward the future is important.

Next, pay attention to the services they provide along with support. You’ll need to learn about and understand their products fully to make the most of them. Access to top-quality user guides and professional technical support is non-negotiable. And the more, the merrier – look for articles, videos, recorded webinars, etc. And last but not least, having a dedicated person looking after your account changes everything. At TFB, for instance, every client has a Client Success (CS) Manager assigned to them. They can jump on a call, get advice, helpful links, or have their query escalated at any time. That’s extremely valuable for dealing with a potential or impending disaster.