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.’