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It is understandable that someone may feel apprehensive about using a foreign exchange provider to transfer their money overseas, especially if they are about to embark on their first money transfer or have not been referred by a friend or relative who have experience of using foreign exchange providers.  However reputable foreign exchange providers have to adhere to strict legislation which make them just as safe and secure as using a high street bank.  The following demonstrates the regulatory requirements that all FX providers have to adhere to:

Regulatory bodies

FCA (Financial Conduct Authority, formerly the FSA) – Foreign exchange providers have to be authorised as either a Payment Institution under the Payment Services Regulations 2017, or an Electronic Money Institution under the Electronic Money Regulations 2011.    Each company will have an FRN (Firm Reference Number) which can be looked up on the FCA Register

HMRC (Her Majesty’s Revenue & Customs) – Foreign exchange providers have to be registered with HMRC as a ‘Money Service Business’ and comply with the strict requirements of the 2007 Money Laundering Regulation (MLR)

A reputable foreign exchange provider will have an FRN and MLR registration number which can be checked with the FCA and HMRC directly.

Security of Funds

Part of the requirements for complying with the FCA’s Payment Services Directive affords clients the following protection:

Segregated Client Accounts – Client funds have to be safeguarded in accordance with FCA rules and regulations, therefore all foreign exchange providers have to segregate client funds from business funds, so in the unlikely event the FX provider got in to financial difficulty client funds could not be claimed by creditors and the transaction would still be completed.

Capital Requirements – FX providers would have proven they have sufficient capital to cover normal payment services risks in accordance with the payment services criteria.

Bank accounts – reputable foreign exchange providers should use large, reputable banks such as Barclays, Citibank, Lloyds etc.  These banks will only service and facilitate foreign exchange companies that meet the stringent legislation outlined above.  In addition, these banks will actually process the money transfers on behalf of the FX provider and they all have robust operational processes in place which will ensure payments are remitted securely and can be traced and located easily.

It is also worth noting that foreign exchange providers do not speculate with client funds or in the currency market thereby eliminating any market risk and exposure.