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How safe is using a Currency Broker?

Regulation of Currency Companies

Currency companies in the UK are primarily regulated by the Financial Services Authority (FSA), but there are currently 2 levels of regulation under the Payment Services Directive 2009.

The 2 levels are called "Authorised Payments Institution" (API) and "Smaller Payments Institution" (SPI). The SPI level is for companies which trade up to €3m per month, above which point they must become APIs.

 

Authorised Payment Institutions

Using an API means that clients can be assured that the FSA has vetted and appoved the following measures:

  • Safeguarded client accounts for holding client funds - separate to the company's own assets
  • Minimum amount of capital held within the business as specified by FSA rules
  • Fair and transparent contracts and charges for payments services
  • Appropriate levels of risk management and experience levels of staff to ensure a smooth service

APIs are the higher level of regulation in the UK, and offer the above protections. You can check on the FSA's website to see if you currency company is an API.

 

Smaller Payment Institutions

SPI-level regulation does not necessarily carry any of the above 4 key safeguards. Some SPIs may offer these, but it is worth asking for proof if you are worried about the safety of your funds.

 

HMRC

Currency brokers are also regulated by HMRC for anti-money laundering procedures, as they are classed as Money Service Businesses (MSBs). This is to ensure that brokers minimise the risk of having their services used for proceeds of crime or terrorist financing. MSBs are obliged to report any suspicious client activity to the authorities, and also to run identity checks on clients using them to remit funds.