Interview With IS Risk Analytics’s Jeff Wilkins: How Risk Management Can Make or Break Your Brokerage Business?

IS Risk Analytics(ISRA), part of the ISAM Capital Markets Group, is a leading provider of risk management technology and services and focuses on providing trading and operational risk solutions to enable brokers of all sizes across the globe to minimize risk and optimize profits.

Today, Fazzaco speaks​ with Jeff Wilkins, Managing Director of ISRA, to discover  the role of risk management solutions in the Forex sector, advice for Brokers who are facing complex regulatory challenges and the emerging trends of the field etc.

---

​Fazzaco: Firstly, could you please give us a short history of ISRA – when was it started, relation with IS Prime, office locations?

Jeff: IS Risk Analytics launched in early 2017 after an acquisition of the assets of a similar business that had roots back to 2011. IS Risk Analytics is a risk business at its core and all of our products and services are geared towards helping brokers safely and effectively better monetize order flow.

We have grown rapidly since the outset and have an unparalleled oversight of over $1 trillion per month in notional volume. This holistic view of the market gives us a unique oversight and enables us to spot trends which individual brokerages, no matter how large, are unable to see.

IS Risk Analytics is based in the US and is part of ISAM Capital Markets which also includes IS Prime ​(an FCA regulated Prime of Prime brokerage headquartered in London) and IS Prime Hong Kong (which is SFC regulated).

Fazzaco: What range of core products and services does ISRA provide?

Jeff: IS Risk Analytics provides risk advisory services, an MT5 and MT4 bridge and risk management engine, server hosting, MT5 and MT4 white label services and bespoke reporting solutions. Every customer is unique and is treated as such. We take the time to understand the specific needs of each broker and build a package that will add value and address their needs.

We work with brokers of all sizes across the globe to provide and implement models that give them full visibility into their revenue, P&L and risk on a transactional, day-to-day, week-to-week and month-to-month basis. The net result is that they can take a more informed approach to risk, adapt their business models accordingly and monetise their flow on a more consistent basis.

Fazzaco:  What role does the risk management solutions play in the forex sector?

Jeff: No matter the model a broker runs, risk is the core of their business. Some brokers have strong 24-hour teams that simply need a second set of eyes and some brokers need a great deal of assistance. The IS Risk Analytics risk advisory services is customized to each broker’s needs.

As flow has become increasingly sophisticated, it is more important than ever before that the trade flow is meticulously monitored and systematically handled in a very calculated way.

At ISRA we take a very systematic approach to risk management – forex brokers need to break down and accurately measure all revenue components, rather than viewing it all as a sort of ‘P&L soup.’ By analysing what constitutes risk revenue (from B-Booking their clients’ trade), versus risk-free revenue components (from things like spreads and commissions), brokers can better predict what their month-on-month revenues are likely to be, gain a better understanding of how to set up a cost basis against that, lock in consistent revenue streams over time, and budget for the future.

Fazzaco: What are basic factors involved in risk management for brokers? And in your opinion, which one is the most difficult to manage?

Jeff: The most important factor in risk management at play right now is making sure brokers understand risk adjusted returns and the importance of a stable revenue stream. The most difficult part about this, however, is getting the broker’s mindset to shift to this new school of thought. We are entering a new paradigm where we are beyond the typical A and B book decisions. Brokers who want to grow and succeed need to transform how they look at their risk books.

Fazzaco: COVID has provided a boost to volatility and challenge to risk management. Has the pandemic increased demand for your product offering?

Jeff: The pandemic has increased the demand for ISRA’s products and services. Volatility is normally a good thing for our industry as any influx of volatility normally increases trading volumes and accompanied revenue, but the volatility in March and April of 2020 presented some unique challenges. We had several new customers come to us due to the unprecedented situation and the issues they faced managing their books.

Fazzaco:  What advice do you have for brokers to manage risk during such extreme volatility times?

Jeff: The number one piece of advice I would give to the owner of any broker is to not use 2020 revenues as a cost basis for moving forward.

Fazzaco: From the perspective of third party, risk management specialist, what do you think brokers can do to deal with its relationship with retail traders? Specifically, how to improve customer retention while minimise the impact from toxic clients for brokers?

Jeff: Brokers absolutely have to educate traders and help them avoid the pitfalls many retail traders fall into. Imagine a world where retail traders were continually successful? Brokerage growth would be exponential. Retail traders need help understanding how to navigate the markets successfully and brokers should be helping the cause.   

Fazzaco: DDOS attacks is also a big and frequent threat, does ISRA provide any solutions in this?

Jeff: DDOS attacks can impact any business in almost any industry. All brokers using our hosting services are protected from DDOS attacks. We leverage state-of-the-art security appliances within out NY4 and LD4 environments as well as industry leading best practices in terms of how those infrastructures can be reached. We do not cut corners when investing into our infrastructure because this is the backbone of our business.

Fazzaco: What upcoming trends do you see emerging and making an impact on risk management in the next few years?

Jeff: Our industry has matured and consolidated over the last 5 years. There is still room for further consolidation, and this will squeeze out low quality vendors who do not approach their business with a long-term vision. I have often told our customers we are not in the trinket making business. We focus on providing our customers the absolute best in breed when it comes to risk advisory services and technology. As we see further consolidation and our industry maturing, brokers will be heavily focusing on the valuation of their business. An extremely volatile revenue will lower the valuation of a brokerage to any outside investor. Brokers are starting to implement more efficient risk models and we are here to help brokers successfully navigate this journey.