How are your assets protected in Finax?
Safety of assets is always a priority. It plays an important role when assessing the quality of investment. Find out how we keep your money secure and what we do in order to protect your savings that you plan to invest with Finax.
License to provide investment services is a must
Finax was founded in January 2018. However, Finax is not just an ordinary joint stock company. The very name Finax, o.c.p., a.s. says that Finax is licensed by the National Bank of Slovakia (NBS) as an investment broker (abbreviation o.c.p.). You can set up a joint stock company in a few days, but in case of broker it's much more difficult.
Obtaining a license from the NBS is difficult. As part of the license application, Finax had to submit a contractual documentation, take into account approximately 20 different directives, including the IT Security Directive, the Anti-Money Laundering Directive, and others.
The application also includes very detailed background checks of all accountable persons. As a founder, I had to submit a clean criminal record, evidence of my education and experience, a complete financial disclosure and tax returns, where I had to demonstrate in detail how I acquired the funds to set up a broker. This is how they examined me and 5 other persons.
As a broker, we had to gather a capital of EUR 125,000 and at the same time prove sufficient capital for the long-term functioning of the company. Although, I knew exactly what to do and how to do it, the whole process took 9 months and required considerable effort.
The NBS has to make sure that people who take care of the money of Slovaks are morally clean, of good repute, have the appropriate knowledge, experience and enough money to manage the broker.
Crucial are two indicators and a strict division of assets
Obtaining a license does not end the relationship with the National Bank of Slovakia. The NBS has a very extensive supervision department. Brokers have to report on a daily, monthly, quarterly, semiannual and annual basis. Together there are 12 types of reports.
Among the reports one stands out in particular - about our own resources. Like banks, we must continuously prove that our own resources are sufficient for long-term functioning. Thus, the regulator makes sure that the broker can handle situations if the business does not go according to the plans. At the same time, by reporting on capital adequacy, the NBS ensures that we do not borrow too much to function.
Most importantly, we must strictly set apart all of our assets from client assets.
The client remains the ultimate owner of the assets in Finax accounts, including cash. The client shall make use of all due rights and obligations under the ownership of the securities.
This is a fundamental and essential part of protecting your assets. The clients' money or securities do not enter our balance sheet and we are not authorized to dispose them outside the agreed transactions defined in the discretionary portfolio management agreement and the related investment strategy.
This is also the biggest difference from bank deposits, where your funds enter the bank's balance sheet and become a liability of bank. Your deposits are a liability for the bank and you have a claim against them. If you deposit money to a broker, you are still the sole owner of the assets.
This is exactly why we have two bank accounts in Tatra bank. One is a client account to which you send money and one is our corporate account, from which we finance all of our operations. Nothing can be mixed up and everything has to be in line, from the acceptance of your deposit to investing, change in the value of the securities, to selling them on the stock exchange and paying out the funds at the end of the investment.
Even in foreign countries, we only open accounts with reputable banks:
- Poland: mBank
- Czech Republic: Česká spořitelna
- Hungary: OTP
- Croatia: Raiffeisen Bank
Similar separation is also present when working with securities. We buy these through an English prime broker, Linear Investments, which provides its services only to licensed brokers, banks and funds.
The Guarantee Fund mainly handles human failures
Despite the best possible security systems, you will always end up with one important factor that can fail, and that is us, people. In theory, it may happen that money and securities become inaccessible for reasons on the side of Finax or for reasons on the side of companies through which Finax trades and holds client assets (banks and Linear).
What could these reasons be? Money fraud, incorrectly placed orders, or other human failures that would result in the broker not having money or securities in his account that he declares to hold for his clients.
Finax is under obligation to review its employees and, if technically possible, set limits on transactions. However, failure can also occur on the part of our partners. It is therefore important to thoroughly review them as well.
Investment brokers are legally part of a client assets protection system. From their fees, they are obliged to pay part of the money to the fund from which any unavailable client assets are covered. If the volume of funds is not sufficient, the rest will be paid by the state (as in the case of the Deposit Protection Fund, which protects household deposits in banks).
This regulation is similar in every EU country. All Finax clients, regardless of their nationality, fall under the protection of the Slovak Investment Guarantee Fund. The compensation rate varies from country to country.
It should be noted, that the Slovak Investment Guarantee Fund provides clients with the second highest level of protection among Central European countries. Our clients are 100% protected up to 50,000 euros. Our Czech, Polish or Croatian clients thus receive a higher level of protection in comparison to the protection they would receive when investing through their local brokers.
If you want to invest more through Finax, you can divide your investment among several members of your household. The limit applies to any natural person, including children. A family of four can receive protection of up to EUR 200,000. Learn how to open an account for an underage child here.
If Finax went bankrupt, it does not necessarily mean that the Guarantee Fund comes into play. As I mentioned, we hold client assets separately. In the worst case, the National Bank of Slovakia will appoint a new trustee, another investment broker, who will continue to look after the client's assets. The Guarantee Fund does not cover losses resulting from the decline in investment due to market developments.
The Investment Guarantee Fund has never been used in Slovakia, which proves the high market integrity. I was a member of the Board of the Guarantee Fund for one term, during which everything was functioning without any troubles. Credit goes to the National Bank of Slovakia, which supervises financial market entities.
In comparison, mutual funds do not offer this level of protection. Asset management companies separate client assets through depositories and the responsibility for the activities of managers and mutual funds is carried by the NBS and their depositary, for which he receives the appropriate remuneration.
IT security as a part of business
There are days in the office when we feel more like an IT company than a broker. We've decided to manage your finances in a modern way that reduces costs, administration and error rates. Technology is therefore an integral part of Intelligent Investing.
We keep your data in one of the most modern Slovak data centers that meets the highest security standards. Our servers are in one place - to minimize communication over the public network - but at the same time they are regularly backed up to a second data center over a private link.
In addition, we have many security measures in place, either in the area of password policy, backup or security of servers and tools. Together, they protect not only the company itself, but especially the data of clients.
We are also working on regular security testing of our infrastructure. For this purpose, we are discussing cooperation with a number of companies dealing with so-called 'ethical hacking'. These will help us identify possible weaknesses and then resolve them.
I hope I answered your questions about the security of your investment. If you want to invest through us in the long term, it is important that you have maximum confidence in Finax. If something is still not clear enough, please write to us and we will be happy to add it to this article.
We founded Finax with big goals in mind. We are convinced that financial services can be offered transparently and with a clear conscience. We believe that this approach will also reward us in the long run in terms of satisfaction of our clients and the growth of assets under our management. We have adapted all our activities from the beginning to this pro-client philosophy.
I think that a fair adjustment of the parameters of Intelligent Investing and long-term thinking is a clear proof of our intentions and goals. Trust is built only over time. We strongly believe that we will gradually get yours, e.g. with a clear communication of how and why we do individual aspects of our business.