Top tips for keeping your money safe
- Check that the company you are dealing with is a fully FSA regulated Payment Institution or Financial Services Firm. You can check the register here: http://www.fsa.gov.uk/register/home.do.
- Avoid Small Payment Institutions as they are not required to segregate client money or submit “capital adequacy” calculations to the FSA.
- Ask the company for a copy of a letter from their bank confirming that their accounts are client accounts and segregated.
- Smaller companies can be exempt from having their financial accounts audited, which means no-one checks the information they submit about their profitability. You can check this on the Companies House register here: http://wck2.companieshouse.gov.uk – it will show as “Total Exemption Small” beside their “Last Accounts Made Up To” date.
- Ask the company for a copy of their accounts and look for a good level of net assets – say over £1m.
- Avoid companies that do not require a deposit for forward transactions if they have very low net assets. Although this may seem great, if they’re offering you credit, they’re probably doing the same with others and may have more risk than they can cover. Most companies will ask for a 10% deposit if the transaction is happening more than a week away.
- Avoid companies that ask you to pay the whole amount of a forward transaction upfront. Crown Currency were taking 100% of client money then holding it in a non-client account for up to a year.
- Avoid companies that are offering a rate the same as the “interbank” market rate or above it. You can find interbank rates at http://www.worldfirst.com. This would mean the company is not making money or is losing money on your transaction. Although this might seem like a good thing it may mean the broker is speculating to make a profit or it could mean they are making losses which might threaten their solvency. Ask yourself why a company would want to lose money on your transaction!
- Avoid companies that don’t require you to provide any identification documents. These are required by law and this could suggest the company is not a registered Money Services Business. You can check the register here: https://customs.hmrc.gov.uk/msbregister/checkTerms.do
- To maximise security, deal with one of the larger, more established companies. There is a list of the 10 largest foreign exchange companies here: http://en.wikipedia.org/wiki/Foreign_exchange_companies
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