Is More Transparency Needed in the FX Industry?

In May 2019 the EU announced that it would fine five of the top banks over €1 billion as a punishment for colluding on foreign-exchange trading strategies. As the activities, which date back to 2013 and earlier, were such a shameless display of collusion this announcement is a welcome surprise. So far, around $2.3 billion has been spent in order to compensate customers as well as investors, so the fines are deserved. To avoid further scandal and penalties, banks are now focused on giving the impression they have cleaned up their culture and controls; this may be true however the FX market is far from clean or even transparent. Institutional banks are not the only ones causing problems.

According to a 2018 survey carried out by FXCintel, on behalf of the Financial Conduct Authority, the outbound UK retail FX transfer market is valued at approximately £60 billion per year.

In the past, consumers who were transferring money internationally would use high street banks and traditional providers as their primary method. However, due to lower infrastructure costs and new technologies, online exchange providers have gained traction among consumers when measured in terms of currency transferred and online searches.

When it comes to transparency, consumers appear to have a lack of total price transparency when they require it most; which allows them to make an informed decision. Unfortunately, there is still a way to go in terms of transparency. In the same FXCintel survey it was found that out of 54 firms surveyed; 3 of them (5.5%) provided meaningful total cost information upfront on their sites. Of the firms surveyed 94.5% of them made it ‘challenging’ for consumers to work out the total cost. In addition to this 35% of firms who were surveyed admitted they required a customer to register an account before they could access total cost.

In the past, there was widespread use of website ‘currency converters’ by online FX provides; even the bigger providers. In 2015 the ASA (Advertising Standards Authority) ruled that this was potentially misleading. In the majority of instances, the rate they returned could not be achieved and therefore the FCA agreed and by 2018 the majority were gone. However, as it currently stands, they have not been replaced; therefore, firms show no meaningful information and restrict the information they give to potential customers. Instead they make unsubstantiated claims that they “beat the banks”.

As of 2018, HM Treasury granted the FCA power to tackle these issues at industry level. As a result, the FCA has since published a paper including recommendations: 19/3: General standards and communication rules for the payment services and e-money sectors. The FCA hopes that these rules ensure good price disclosure and more price-based competition. The rules aim to ensure transparency in the industry and to encourage meaningful comparisons to be made to other providers in a fair and balanced way.

The rules detailed above came into force on 1st August 2019.

CEO of Eris FX and ambassador of the Transparency Task Force says: ‘If the rules do actually come into play on the 1st August, then we will be well on our way to a proper, competitive and transparent marketplace. However, given the vast sums of money involved, and the vested interest in preserving the status quo amongst the dominant providers at least, I’m not holding my breath.’

Understanding your Pension Options when Retiring Overseas

The world is really your oyster when retiring abroad; it has become increasingly popular to retire overseas as an expat due to the freedom it offers. As so many countries begin to embrace a global lifestyle it could be the perfect time to consider retirement abroad. When you’re deciding whether to retire overseas and where to retire overseas you will have to consider a number of things such as quality of life and climate.

In addition to this it is essential that you do your research into understanding the impact retiring abroad may have on your finances. As with retirement in the UK, your pension is likely going to be crucial when it comes to enjoying your retirement; most commonly those retiring in the UK will have income streams from their UK state pension and workplace or personal pensions. For those who have a property portfolio, this will generate a suitable income in addition to their pension; but your pension is still a crucial consideration no matter what.

UK State Pension

Anybody who has worked and contributed to National Insurance is eligible for the state pension. The amount you’re eligible for will differ based on your contributions. With the UK state pension, you can choose whether you have it paid into a UK bank or building society; or, a bank within the country you’re living in. With the UK state pension, it is up to you how often you’re paid; either every 4 weeks or 13 weeks. If you’re payments are less than £5 per week you will receive payments annually in December.

Workplace and/or Personal Pensions

In most cases you’re personal or workplace pension will be a more lucrative source of income than your state pension. Therefore, it is essential that you know the best way to manage these in order to maximise your income from your pension. There are generally two options when it comes to personal and workplace pensions.

  1. Moving your Pension Abroad

In some cases, it will be possible to move your UK pension scheme to an alternative scheme abroad. Your plan must meet certain conditions which deem it as ‘Qualifying Recognised Overseas Pension Scheme’.

  • Keep your UK Pension

From the age of 55, you can request early payment from your pension scheme. You may be able to withdraw 25% of your pension value as a lump sum which you can then use to set up in your new home abroad. The remaining money can then provide you a lifetime pension; make sure, however, that you consider the impact of currency fluctuations.

As your pension is held in UK pension scheme it is paid in pounds sterling. This needs to be taken into consideration when you’re calculating the amount of income you need to support your desired quality of life as the exchange rate can fluctuate over time.

It is also important to keep in mind that banks tend to charge you a large percentage of the value of your payment whereas there are FCA-authorised specialist companies which can charge a fraction of the amount. They work to ensure you get more for your money. As a specialist online currency company, Eris FX can help you with retirement abroad; helping UK expats transfer large sums of money from their pension abroad every year. This can then be done when the rates are most favourable; to ensure you get more for your money.

Retirement abroad should be filled with excitement and fulfilment; to ensure your move goes as smoothly as possible make sure you do plenty of research. Consider where you would most like to enjoy your retirement and when you know make sure you seek financial advice on retirement abroad so that you can focus on enjoying your retirement.

How have the new FCA regulations impacted online money transfers?

The FCA has been looking at the international money transfer regulations for some time now.  It was concerned about misleading marketing messages that some firms were giving out about the costs of transferring money overseas.

The most common of these was to have a “currency converter” on firms’ websites which asked users to input how much currency they wanted the buy or sell.  People thought it would give them an accurate price, but instead it just showed the “interbank rate” which consumers can’t have.  That rate isn’t even used for commercial exchange rates because it doesn’t include any of the provider’s costs.

The problem was, though, that the FCA’s hands were tied as far as payment services companies were concerned.  Unlike banks and other financial institutions, the FCA couldn’t set rules about what those firms could and couldn’t say in their advertising.  This meant that the regulator had to deal with each complaint separately instead of across the whole industry.

In July 2017 HM Treasury gave the FCA more powers to regulate these practices.  As a result, the FCA had much more say over what was and wasn’t acceptable in terms of advertising.  The rules came into effect in August this year and the FCA released its policy statement called General standards and communication rules for the payment services and e-money sectors  https://www.fca.org.uk/publication/policy/ps19-03.pdf

The paper says: “Our rules…will help providers and customers to understand and meet the standards of behaviour we expect in the market” and that this will lead to a consistent approach across all firms in the payment services and e-money sectors.”

The paper then goes on to explain what the FCA‘s expected standards of behaviour are. For example, it says: “Where providers compare the costs of their service with other providers, they do so in ways which are meaningful, fair and balanced, and can be substantiated.”

In plain English, this means that firms must be able to demonstrate how they are cheaper than their competitors.  For example, if they claim to have “bank beating rates” they need to give evidence.  They will need to have checked the banks’ prices for every deal size that they are saying is cheaper than the banks.  If they don’t do that, they can’t make the claim!

This all sounds very positive.  A clear set of rules so that consumers know exactly what they’re getting, all presided over by the regulator. 

But, alas, no.  Here’s the bad news.  1 August has been and gone and … nothing has changed.  A quick internet search for “bank beating rates” shows dozens of firms still claiming this without any evidence at all.  Similarly, claims of “best rates” and “best rate guarantees”, which are both a supposed no-no from the regulator, are all over the web.

Even worse, some firms are still using a converter to show the interbank rate, something the Advertising Standards Authority outlawed almost four years ago. 

So, what’s gone wrong?  Well, it seems that the FCA’s financial promotions department, which investigates complaints about misleading advertising, hasn’t quite caught up with the new regulations yet.  When we asked them what had changed since they came into effect on 1 August, they said “our risk-tolerance in relation to payment services and e-money firms has not altered since 1 August.  We will continue to consider financial promotion concerns on a case-by-case basis..”

This is disappointing to say the least.  We assume that the months of time and money that has gone into researching and designing the new regulations was intended to produce a positive result in terms of cleaning up the industry.  It seems odd for the regulator to take the matter so seriously on the face of it, but not to actually follow through with the implementation of these new international money transfer regulations.

We’ll keep contacting the FCA to try to find out what’s going on, and we’ll report back if anything changes.

Busting the Misleading Currency Exchange Marketing Messages

If you’re looking to transfer a large amount of money overseas, you will often see a confusing array of marketing messages from foreign exchange providers and currency exchange companies. They sound attractive, but what do they really mean?

“Interbank rate”, “mid-market” or “indicative rate” currency converters

These converters typically ask you to input the amount of money you want to convert, or they autofill with the details of an overseas property and then show the results.

In 2015 the Advertising Standards Authority (ASA) ruled that converters which return the interbank rate were misleading because they do not show the true cost of the conversion, or any idea of what that provider is actually charging.

If you see one, you can report it to the ASA or to the Financial Conduct Authority with your concerns.

“No fees”, “free transfers”

They say there’s no such thing as a free lunch and that’s true for currency transfers as well. A same-day currency transfer usually costs about £7. If the provider is offering this for “free” then they’re just charging you somewhere else instead, usually in the exchange rate. You need to know the total cost of the deal, either as a percentage of the total value of the transaction or as a monetary amount.

“Bank-beating exchange rates”

Whilst many specialist payment transfer firms can save you money compared to using your bank, they must provide proof of the savings and not just make an unsubstantiated claim.  If a provider says this on their website or ad, ask where the figures are published and how you can check their claim independently.

“Best rate guarantee”

Obviously, there can only ever be one “best rate” so why are so many firms promising it?  All of them use the same premise – you have to find a cheaper deal and they’ll beat it. The problem is that you have to be registered with multiple providers to get quotes to compare, and currency markets move so fast it’s almost impossible to do it simultaneously as required to qualify for the “guarantee”.

The only reliable way to guarantee the best rate is to ask providers what their total costs for the deal will be. Eris FX shows this as a percentage of the total deal size. You can see this clearly displayed by using our currency converter.

Save 4% compared to the banks

Again, these are unsubstantiated savings claims. The ASA ruled that without proof they are misleading and such claims should not be made. If the firm makes these statements it must back them up with evidence.

0% commission

This is a commonly used marketing message, but it doesn’t mean anything.  What is “commission”? The firm is making its money somehow so what are they calling the costs? Ask to see the total cost of the deal, either as a monetary amount or as a percentage mark-up.

Trust Signals to Look out for When Making International Money Transfers

When you’ve found your ideal property overseas the next step is how to transfer large sums of money to pay for it.  In many cases this is a significant chunk of your assets.  Whilst you want to get the best deal you possibly can, you also need to be sure that it’s in safe hands.

With over 500 providers authorised to provide international money transfers in the UK all fighting for your business, how do you decide which company to trust with your international payment?  We’ve put together a handy list of three tips and trust signals to look out for.

  1. Transparency

You wouldn’t buy a house or a car without knowing the price first, so why do that with your international money transfers? 

Before you choose a provider, you need to understand what the eventual cost of the transaction will be, because this could make a difference of hundreds or even thousands of pounds to you and the price of your overseas property. 

Yet the vast majority of providers give no price information on their websites at all.  They website may advertise “free quotes” or “check our exchange rate” but this is usually just an invitation to give them your contact details so they can phone you back. 

You may not be told the cost of the transaction until you have completed the registration process with a particular provider.  This makes it very difficult to shop around and compare prices easily.

So, if you don’t want to waste time with filling in forms and sales calls, look for a firm that is upfront and transparent about the total cost of the transaction, such as Eris FX.  Eris shows you its costs as a percentage of the total amount to be transferred on its website currency converter.  Even though the exchange rate might move, the cost to you doesn’t. 

If your provider is not prepared to be upfront about its costs, do you really want to trust them with your life’s savings

2 . Honesty

You also need to know that the provider you choose is honest.  This means not trying to mislead or hoodwink you about the cost of your transaction by using underhand marketing messages.

The most common of these are:

  • Online currency converters that only return the unachievable “interbank rate”, which doesn’t include any of the firm’s charges. 
  • Claims of how much you can save compared to your bank or other provider without giving any evidence
  • Claims of “no fees” without explaining that “fee” only applies to the bank transfer cost and doesn’t include the exchange rate mark-up

The Financial Conduct Authority commented:

“We have seen firms make claims that they offer the ‘best’ or ‘most competitive’ rate, seemingly without evidence, or by making comparisons based on exchange rate or fees alone, and not taking account of the overall cost to the customer”

Again, if your provider isn’t being honest with you about its costs or savings, and won’t give you evidence, do you really want to trust it to transfer your large sums of money overseas?

3.Fairness

Would you like it if you paid more for your restaurant meal than someone at the next table having exactly the same thing?  Probably not.  So why should a payments firm charge you more than another customer for an identical overseas payment.

Rather than operating a “mathematical pricing” structure, which applies the cost to the size of the transaction like Eris FX does, many firms charge customers on an individual basis.  They do this by employing dealers and salespeople who are paid on commission to negotiate with customers. 

This means that more “sophisticated” customers are likely to secure better prices, even if they’re making the same international payment as you are.

We don’t think that’s fair, and how can you trust someone who’s not behaving fairly? 

In summary, the trust signals to look for in a payment provider are just the same that you would use in the other aspects of your life: are they transparent, honest and fair?  If not, why should you give them your business! If you’re looking to send a large amount of money abroad or make an international business payment, consider using Eris FX and sign up for an account today!