The power of FX outsourcing & automation

Over the years, outsourcing FX has emerged as a prominent trend in business operations, and this year has proven to be no exception. As UK CFOs have battled against heightened currency volatility and uneven global economic growth, with advanced economies experiencing slowdowns.

A recent YouGov study revealed that 70% of British businesses are now turning to outsourcing solutions, this is backed up by our own survey in which all corporate respondents stated they outsourced FX processes in some capacity.

In this blog post, we will explore how businesses are outsourcing their FX to optimise operations and maintain a competitive edge:

• Achieving operational flexibility
• Drive efficiency and accelerate automation
• FX risk management
• Reducing operational costs without sacrificing quality
• Outsourcing FX processes with MillTechFX

 

Achieving operational flexibility

FX is one of the largest and most liquid markets in the world, but also one of the most complex. Managing a variety of hedging instruments to counter market volatility, undergoing lengthy ISDA onboarding processes, and ensuring adherence to regulatory compliance, can be daunting for some businesses, especially those lacking the necessary infrastructure for effective FX operations.

In fact, 29% of UK corporates have turned to outsourcing as it provides greater scalability and flexibility in operations. Outsourcing can provide the flexibility to scale FX services according to the business’s needs, without committing to long-term resource allocation. This scalability ensures that firms only pay for the services they require, optimising cost-effectiveness as their foreign exchange volume fluctuates.

Increased scalability can be realised by corporates gaining access to specialised expertise and advanced technology without the need to invest heavily in in-house capabilities. This can enable them to handle larger currency volumes and mitigate FX risks more effectively as they grow.

 

Drive efficiency and accelerate automation

In today’s highly competitive landscape, businesses that prioritise efficiency are often better equipped to adapt to changing markets. 26% of UK corporates delegate FX responsibilities to an external provider to increase efficiency, which typically includes overseeing the onboarding of new FX counterparties, centralising price discovery, and managing the post-execution phase.

Alongside the drive to increase efficiency, reducing manual tasks has become a key focus, with process automation emerging as a top priority in FX operations. Despite this, many businesses continue to rely on outdated technology for their in-house FX operations, with 42% of CFOs using phones as their main method for instructing FX transactions.

Additionally, fragmented service provision remains a challenge for 27% of corporates, with CFOs identifying it as one of their main FX hurdles.

By outsourcing FX operations to specialists, corporates can gain seamless access to real-time rates from a broad network of liquidity sources, all integrated into a single platform. This consolidation enables corporates to achieve best execution with improved transparency, frees up internal resources, and additionally ensures that regulatory governance requirements are met, providing assurance to key stakeholders.

 

FX risk management

Our findings indicate that 29% of UK corporates opt to outsource foreign exchange operations due of the complexities involved in risk management and compliance. Following episodes like the forex rate-rigging scandal in 2014, many market principles and regulations were introduced, such as the FX Global Code of Conduct and MiFID II, to avoid crises like this again. Whilst these may be overall beneficial to the ecosystem, these rules and regulations require a lot of work in order to be met.

In addition, significant market volatility and exchange rate fluctuations require sophisticated strategies to manage effectively. This often demands substantial resources, expertise, and technology, which can be especially challenging for small to medium-sized enterprises. Furthermore, the need to stay informed about geopolitical events and economic policies adds another layer of complexity, making it harder for businesses to plan long-term risk management strategies and predict future costs accurately.

 

Reducing operational costs without sacrificing quality

Across the UK, many individuals have felt the pinch of tighter budgets, and businesses are no exception. 70% of corporates reported an increase in the cost of hedging over the last year. In addition, a stagging 79% reported a recent increase in interest rates and fees from credit providers, noticed most by accountants and CFOs, with 88% reporting a spike within both roles.

Businesses are highly likely to be exploring various cost-cutting strategies, with 22% opting for outsourcing. By leveraging advanced platforms that provide competitive pricing from multiple partners, firms can be confident they are achieving best execution on every trade, from spot to forwards.

Some providers include free transaction cost analysis in their services, revealing hidden costs in the spread and offering corporates insights into their trading performance. This analysis provides guidance on improving FX execution techniques and identifies risks and inefficiencies in trading, allowing for proactive strategy refinement and risk mitigation.

 

“It is no surprise to see that corporates seek to outsource their FX execution and operational requirements to a dedicated and tech-enabled FX expert. This can provide them with transparency into their execution quality via transaction cost analysis and to manage all their FX operational requirements, allowing them to focus on their core product expertise and processes.

James Hull, COO at MillTechFX”

 

Outsourcing FX processes with MillTechFX

Our multi-award winning independent FXaaS solution is designed to significantly reduce FX hedging costs for corporates and ensure they achieve FX transparency.

By harnessing the decades of experience of Millenium Global, one of the largest currency management groups, we are able to provide corporates with direct access to preferential FX rates from up to 15 Tier 1 counterparty banks.

By outsourcing your FX processes with MillTechFX, you can:

• Enhance FX risk management through diversifying counterparties
• Automate end-to-end FX processes including execution, settlement and trade reporting
• Obtain express ISDA onboarding
• Auto-settle trades via SWIFT
• Audit the quality of your FX execution and demonstrate good governance with free third-party TCA’s.

 

This blog post examines & refers to the data and results of a survey conducted by Censuswide on MillTechFX’s behalf conducted between 17 June and 30 September 2024 of 250 CFO’s, treasurers and senior finance decision-makers in mid-sized corporates (described as those who have a market cap of $50mil up to $1 billion/£38m to £770m), in the .

This blog contains links to external websites or third-party sources. While we strive to provide accurate and reliable information, we do not guarantee the accuracy or completeness of information obtained from such external sources.

This blog, including the information provided herein, is provided for information purposes only and does not constitute an invitation or offer to subscribe to or purchase any of the products or services mentioned.

The information contained is intended for Professional Clients (or elective professional clients only). MillTechFX does not target retail clients as the products offered by MillTechFX are not suitable for or made available to retail clients.

The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. You should consult your investment, tax, legal accounting or other advisors.