transfer these funds into your, or someone else’s, bank account abroad. Even once you’ve bought, you may have to make regular payments overseas from the UK, for example to meet mortgage repayments, or if you retire somewhere sunny you’ll need to have your pension paid monthly into a foreign bank account. Your high street bank will be able to do such
CURREN N
ine times out of ten, buying an overseas property will require you to exchange your pounds into another currency and
currency transfers for you, but instead you could use a specialist currency – or FX – broker. More and more overseas buyers are choosing the second option thanks to currency brokers being able to offer them better exchange rates than banks, typically by up to four per cent, and making the process of transferring money stress-free. As specialists in currency transfers, brokers offer a number of money-saving solutions, or contracts, suited to typical client scenarios. One of the most useful of these is the “Forward contract”, which effectively protects your buying power from currency fl uctuations by letting you fi x an exchange rate for a future transaction. This means you can budget properly for your overseas property purchase. For example, if you have a Sterling budget of £150K and the current £/€ rate is £1=€1.17, a currency broker might guarantee you a rate of £1=€1.15 for up to 18 months, meaning you know at any time in that period your £150K is worth €172,500, even if the exchange rate were to drop to £1=€1.13. With a forward contract you can either fi x the date you wish to take delivery of your currency, or have the option of taking delivery at any point up until the agreed date. Typically, to secure a forward contract, a broker will ask for ten per cent of the total value of the future transaction. The most basic and commonly used contract is a “Spot contract”. While these let you buy foreign currency with your broker immediately, they are not recommended if you have a budget to stick to and time
to fi x a preferred rate. If you have funds you’d like to transfer abroad but are keen to receive a particular rate and are not restricted by time, “Stop-loss orders” and “Limit orders” allow you to buy currency only once your preferred exchange rate is available. Your currency broker would monitor the currency markets and keep you updated. For anyone who needs to make regular payments
abroad, or who lives abroad and needs to receive regular payments from the UK, currency brokers offer regular payment plans. Typically, they can set up automated payments via Direct Debit from your UK account and offer three options of regular payments. Firstly, you can fi x the amount of pounds you send abroad on a regular basis, for example monthly, which means the amount of local currency you receive in your foreign bank account will fl uctuate with the exchange rate. Or, in reverse, you can fi x the amount of local currency, for example euros, that is paid into your overseas account, meaning the amount of pounds being debited from your UK account will fl uctuate with the exchange rate. Thirdly, you can use a forward contract to fi x the exchange rate you receive on all regular payments over a specifi ed period, such as 18 months. Other benefi ts of currency brokers are that they tend to charge less - or often nothing - in bank transfer fees compared with banks, allocate a personal account manager to each client have and now increasingly allow you to access your account with them on-line.
FSA regulation for currency brokers
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.
AIPP CONSUMER GUIDE 31
SECTION 3 ESSENTIAL SERVICES
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