The use of the interbank rate in online currency converter tools

The FCA is concerned that payment institutions and e-money institutions may have used currency converter tools in relation to their currency transfer services^[1] in a misleading way. Tools which convert currency at the interbank rate may be used in such a way as to give consumers the misleading impression that the rates shown are available to them, rather than the materially inferior rate that they are likely to achieve. Furthermore, consumers may not become fully aware of the inferior rate they are likely to achieve until an advanced stage in the customer journey, commonly after a customer registration process has been undertaken. At that stage, consumers may be unlikely to shop around.

The FCA has previously and publicly reminded firms offering currency transfer services of its concerns relating to the use of the interbank rate in currency converter tools, on their websites and in other promotional and marketing material.

Legal and Regulatory Provisions

Payment institutions that undertake currency transfer services are authorised or registered under, and subject to, the Payment Services Regulations 2009 (PSRs). E-money institutions that undertake currency transfer services are authorised or registered under, and subject to, the Electronic Money Regulations 2011 (EMRs), and also subject to the conduct of business provisions of the PSRs. All firms undertaking currency transfer services must comply with the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). The FCA has the power under the EMRs and PSRs to impose a requirement on a firm’s authorisation/registration, and may enforce the CPRs by obtaining an enforcement order under the Enterprise Act 2002.

Banks conducting currency transfer services are subject to the conduct of business provisions of the PSRs and must also comply with the requirements of our Handbook, including our specific financial promotions rules, as set out in Chapter 2 of the Banking: Conduct of Business sourcebook. The FCA has a wide range of powers with which to address breaches of our requirements, including by the imposition of financial penalties.

FCA action

We previously advised that if we considered that firms were not acting in accordance with our expectations in this area that we may take action – including supervisory and/or enforcement action. We subsequently commenced investigations into a number of payment institutions whose promotions we consider to be potentially misleading as a result of their use of the interbank rate (which was not available to customers) in an online currency converter tool and in other promotional material.

Since our investigations commenced, a number of firms have taken steps to ensure they do not risk misleading customers as to the conversion rate they will achieve if they use the firm’s currency transfer services.

However, there are a number of firms that are still using the interbank rate in a currency converter tool and in other promotional material relating to their currency transfer services in a potentially misleading way.

The FCA is determined to ensure that payment and e-money institutions engaged in currency transfer services do not use the interbank rate in a potentially misleading way. Accordingly, we are actively considering further investigations and action in this area. In doing so we will have particular regard to any firms which do not take appropriate steps in light of today’s announcement.

Additionally, following engagement with HM Treasury, and as announced by HM Treasury today, the FCA’s rule making powers are to be extended in relation to payment services, which will allow us to apply rules to financial promotions issued by payment institutions and e-money institutions. We plan to consult on making new rules using these powers as a priority.