AIPP • TRANSFERRING CURRENCY Tranferring
you’ll need to transfer money between the UK and another country, from one currency to another. Your high street bank will offer to send your pounds to an overseas bank account, converting them into euros or dollars along the way, but there is another option – currency brokers. Currency brokers are specialists in foreign exchange markets – they’re also known as FX brokers – and as such are better suited to transferring money overseas than banks.
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By buying and selling large amounts of foreign currency on behalf of clients, currency brokers typically beat exchange rates offered by banks by up to 4% – a saving of up to £4,000 on a €120,000 transaction. Also, unlike banks, it is usual for
currency brokers to charge no commission – although this can depend on the value of the transaction – and waive banking fees. When clients open an account with a currency broker
they are allocated a personal account handler, thus avoiding the “call centre” environment of banks.
The FSA
In November 2009 currency brokers – officially classed as Money Services Businesses (MSB) – became regulated by the Financial Services Authority (FSA). This move should give peace of mind to consumers who previously were nervous about entrusting their money with an unregulated money services business. Now, depending on their monthly turnover, currency brokers must either be ‘registered’ or ‘authorised’ by the FSA. However, companies that have been trading for a specified period – so have a proven track record – have a grace period to become authorised or registered. Whatever their current FSA status, all currency brokers must comply with FSA regulations.
hether you’re buying a second home abroad or you live overseas, at some stage
Currency brokers have a range of solutions, or contracts, to suit different client scenarios. The spot contract is the most basic and commonly used solution and lets you fi x an exchange rate with your broker on the spot. Although spot contracts let you buy currency as you need it, they are not recommended if you have a strict budget to stick to. Instead, for those who prefer to budget carefully – and protect themselves against fl uctuating exchange rates – currency brokers offer forward contracts. These are a type of ‘buy now, pay later’ solution that allow you fi x an exchange rate that will apply when you need to transfer currency some time in the future, usually up to two years. If you’re not risk averse and wish to
take a gamble on rates improving, then you could opt for a stop loss order or limit order. The former will protect you against adverse exchange rate movements and secure your currency if it falls below a pre-agreed rate; the latter is placed at the top end of the market to secure currency at a specifi c price that may not be currently available. These types of contracts allow you to aim for a higher rate while providing protection should markets move against you. Finally, currency brokers can set up regular payment schemes for you. Examples include transferring pounds into euros on a monthly basis to cover overseas mortgage repayments or transferring a UK pension to an overseas account each month.
22 AIPP CONSUMER GUIDE
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