Currency Transfer Companies are Subject to Strict Regulations

By Justin Thomas – To many, it is banks alone that adhere to legislation related to customer protection, anti-fraud and money laundering legislation. For this very reason, they tend to call banking institutions the most trustworthy financial outlets. This is a popular fallacy and banks do not take much effort to undeceive their clients by saying that most governments around the globe have imposed strict regulations covering all financial companies processing money orders, money transfers and currency exchange operations.

In countries like the U.S. and all member states of the European Union (EU) not only banks but also currency brokers providing payment and similar services are subject to tight supervision. In the U.K. these companies are regulated by the Financial Services Authority (FSA), which ensures that they provide reliable and legitimate service to their customers. Since 1 November 2009, all British currency transfer companies have to follow the regulations of the Payment Service Regulations.

To customers it is important to know that under these regulations currency transfer companies must safeguard client money, must show ongoing capital adequacy, and all directors and shareholders holding stakes larger than 10% in the company must pass a test by the FSA. Another guarantee for customers”?? money is a requirement for these companies to present detailed governance and risk management procedures. All these procedures and regulations apply to currency transfer brokers who transact more than ^3 million a month. Companies with a lower turnover are allowed to bypass some of the above mentioned regulations but are required to register with the FSA.

Both types of companies, known as “??payment institutions”?? are regulated by the Conduct of Business rules, which is meant to guarantee that customers receive the service offered in a proper and high quality way.

Moreover, payment institutions are subject to even stricter regulation by the EU, namely Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. The directive covers not only financial and credit institutions but also certain legal and natural persons who are involved and working in the financial sector, including providers of goods (when cash payments in excess of ^15,000 are made).

This directive and all related European legislation ensure that financial institutions, including payment institutions, conduct their business in a proper way and according to the best business practices. National governments within the EU are bound to incorporate the EU law so it is really difficult to bypass these regulations related to currency transfer operations.

Some companies may complain against such complicated regulations but it is good for customers because they can choose their financial service provider in a more informed way and get higher protection against frauds and bad business practices. In addition, payment institutions are obliged, at least in the U.K., to safeguard client money so customers must be glad to get additional guarantees that their precious funds will be managed responsibly.