FNG Exclusive Interview… A lot has changed since we last caught up with Jeff Wilkins of IS Risk Analytics – part of ISAM Capital Markets – at the very beginning of 2022. A major war has unfolded in Europe. Inflation has reared its ugly head in economies worldwide. Volatility has returned to the equity, FX, commodity, and of course crypto markets.
So we thought that now would be a great time to connect again with Jeff, who as Managing Director of IS Risk is a leading provider of risk management solutions for brokers, and see what he has to say.
FNG: Hi again Jeff. What are the trends you are seeing in the market at the moment?
Jeff: The brokerage world is ever evolving, and we continue to see growth, especially in Asia. A few years ago, emerging markets in Southeast Asia were where the most growth originated. Many of those brokers are now reaching a maturation phase and are looking to standardize their setups and future proof their businesses. This involves obtaining multiple regulatory licenses, optimizing risk management practices and vendors, and diversifying their sales footprint.
Crypto is a hot topic now as well. Brokers missed the mark early on by focusing on offering CFDs on crypto. The reality is traders are generally not looking to speculate on fluctuations in crypto prices. Traders are more interested in funding via crypto due to the ease vs traditional banking. This does give brokers flexibility for customer funding, especially in areas of the world where traditional banking is not as prevalent, but this also presents further risk due to the lack of financial strength and transparency with various wallet providers.
Some newer brokers are struggling to meet banks’ requirements in order to accept traditional customer deposits. As a result, more and more are accepting crypto deposits from clients instead of traditional currency deposits. This leaves these brokers in a difficult position when seeking sources for liquidity. If they are unable to meet bank requirements, they are also unlikely to meet the requirements of most tier 1 liquidity providers. In addition, their funds are primarily held in crypto which many liquidity providers are reluctant to accept. As a result, these brokers are moving down the quality curve in terms of sources of liquidity.
FNG: We understand that in addition to risk management analytics, IS Risk provides value add in terms of the insights for clients. Please explain more about this consultancy aspect of the business.
Jeff: Brokers often feel they are operating in a vacuum and hiring for a risk desk can be very difficult. Because risk management philosophies differ, brokers crave a consistent voice in the background. That voice for much of the industry is IS Risk. We work with brokers of all shapes and sizes in every corner of the globe and have oversight of more than $1.9 trillion of monthly notional trading volumes. This means that we can provide valuable insights as we have a vantage point over the industry that simply cannot be found elsewhere.
The consultancy aspect of our business is an important part of our offering as we are able to spot trends, regionally and globally, which brokers (no matter how large they are) are simply unable to see.
We don’t have a “one size fits all” approach with brokers. We realize every business is different, with different nuances, different people and different expectations from shareholders. We are very experienced in what we do and have a proven track record in helping brokers to take a more informed approach to risk, adapt their business models accordingly and monetise their flow on a more consistent basis.
FNG:Where are you seeing most new business opportunities coming from?
Jeff: One of the interesting trends we are seeing as of late is the funded trader space. There has been a handful of players for years, but we are now seeing new entrants daily and are even seeing some of the well-established brokers rolling out their own offering. We have the infrastructure and risk offerings to support these programs and are already working with the biggest companies in the space. This dramatic increase reminds me of the explosion in retail FX in 2009. My hunch is this will keep growing quickly in the short term and then consolidate at a much faster pace than the traditional retail brokerage space recently did.
FNG: IS Risk is part of the ISAM Capital Markets Group. How independent are you from IS Prime and IS Prime Hong Kong?
Jeff: Entire oceans separate our companies. IS Risk is based in Michigan, IS Prime is run out of London and IS Prime Hong Kong is, unsurprisingly, based in Hong Kong. Each firm is run as a separate entity.
We have our own clients independent of IS Prime and IS Prime Hong Kong and we have some shared clients We are led by clients in terms of their requirements and whether they need liquidity as well as risk management support.
Being part of ISAM Capital Markets provides significant benefits to clients in terms of the technology used across the Group, our operational excellence and our 24/7 service. There are cost savings and efficiencies for clients who interact with multiple entities across the ISAM Capital Markets Group but it is not an issue if clients choose only to contract with IS Risk and we are very happy to work directly with them on a standalone basis.
FNG: Many bridge providers and tech vendors offer risk management solutions within their platforms. How does IS Risk differentiate from these?
Jeff: IS Risk is the leader and really stands out from the competition – and we are constantly evolving in order to stay ahead. There are some great technologies out there, including our own cutting edge proprietary bridge and risk engine, but IS Risk is the only technology solution in the market that is backed up by a 24-hour risk management team. Imagine having a Formula 1 car without a pit crew? Our technology is the Formula 1 car, and our crew is incredible. We also see a very high degree of staff turnover at tech/bridge vendors in our industry. Our customers take comfort knowing they are dealing with a great team that has been with us for years.
For more information about IS Risk, please contact us.