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.