As somebody who worked in South Africa in the 1980s and 1990s, when foreign exchange regulations were at their toughest, John Cookson has a keen understanding of why global citizens need to manage their foreign exchange exposure smartly.
Cookson – the managing director of Capital Treasury Services – is passionate about demystifying currency risk and treasury services for mid-sized businesses that participate in the global marketplace.
“I guess you could say I went from poacher to game-keeper. I started out life as a professional forex trader but over time I spread my wings into treasury services,” he tells Moneyweb in a telephonic interview.
Cookson’s current role sees him managing treasury services for the Capital International Group, which works with professional advisory practices, SMEs, and qualifying high net worth individuals, to deliver a suite of offshore financial solutions: including platform services, offshore investment funds and portfolio services, and treasury services.
“Predominantly our business has been in the Isle of Man, but in recent years we have expanded this to the UK, South Africa, Malta, and Gibraltar. Technology has meant that you can be anywhere,” says Cookson.
Celebrating 20 years
The Capital International Group recently celebrated 20 years of trading.
The treasury division was formed in 2007. This was built to support the existing trading and stockbroking services and over the 20-year period, the business has raised $US4.5 billion in assets under management.
“Back when the treasury business was formed cash was king, with interest rates in the UK above 6% and there was a growing interest in the dollar and pound markets,” says Cookson.
He points out that as the global economy becomes more integrated, there is a rising need for simple single-sourced treasury solutions with the ability to move and convert cash assets quickly and efficiently.
On top of this, the Capital International Group has seen a major spike in e-commerce and e-gaming businesses which operate around the globe: while primarily domiciled in the Isle of Man they are now seeing growing opportunities across other jurisdictions.
Since 2014, the company has placed over 5 000 foreign exchange transactions with a value of over $2 billion. These trades have varied in size from $10 to over $75 million, depending on client requirements.
Cookson attributes these volumes to the competitive rates across multiple currencies they can offer, all of which is resultant of the growing market presence the division has generated, afforded by the full suite of innovative treasury solutions.
Business needs to understand its foreign exchange exposure
While many businesses are wanting to trade across the globe, many of them don’t have the specialist skills in place to manage this exposure.
“The Swiss franc is a perfect example of the volatility of markets,” explains Cookson, referring to the January 2015 decision by the Swiss National Bank to unpeg the franc from a fixed exchange rate. Up until that moment, it had been regarded as one of the most stable currency trades in the world and the decision created enormous volatility in the market and crippled at least one major US foreign exchange brokerage.
“You might have the right product and service but you have to understand things like translation risk, particularly if you have global subsidiaries,” says Cookson, adding that it’s key to understand present value versus future risk: “If you wait for your house to burn down, you are not going to insure it afterwards.”
The rise of FinTech
Cookson believes that the rise of FinTech businesses across the globe has been a major driver of innovation, including in the world of treasury and trading services. Another catalyst that FinTech has encouraged is that of collaboration – especially between banks, financial services companies and the regulators.
“Businesses are wanting to trade in new markets, countries and currencies and they need people to be able to trade with,” he says.
Despite nearly a decade having gone by, the Global Financial Crisis is still fresh in the minds of many people, particularly those who were transacting with banks and financial services firms in the UK.
This has seen an explosion of high-quality technology businesses disrupting and enabling the financial services sector. One such business is Faster Payments, a service aimed at reducing the time it takes for payments to reflect in client accounts.
While ‘FinTech’ has become the new buzzword in financial services, the role of regulators across the globe is becoming increasingly important, particularly with regulators having to work in multiple jurisdictions. The Capital International Group is regulated by both the local Financial Services Board (FSB), as well as the regulator in the Isle of Man.
The crypto-currency market is another one that Cookson believes will play an increasingly important role in the coming years. Bitcoin has exploded in popularity – and value – over the last couple of years and both consumers and businesses are beginning to view it as a real-world transactional currency.
“I’m not convinced Bitcoin will be the final solution, but I do believe there are elements we can take from crypto-currency. The use of the blockchain, for instance, [as] a means of securing personal data, is one area that has sparked major interest and is worth keeping an eye on,” he tells Moneyweb.
Does Cookson have any parting advice for businesses who need to trade across the globe and manage their foreign exchange exposure?
“Simplify it. This is an industry which can really confuse people, so find service providers you like and understand. Agree on a strategy and stick to it”
Brought to you by Capital International.