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FCA crackdowns on 'misleading' use of interbank rates in online currency converter tools

Some firms may be displaying misleading information about the amount of money consumers could obtain when exchanging currency, the UK's Financial Conduct Authority (FCA) has said.20 Jul 2017

The concerns relate to the firms' use of the interbank rate in online currency converter tools and other promotional material, the regulator said. The interbank rate was not available to customers, it said.

Financial services regulation expert David Heffron of Pinsent Masons, the law firm behind Out-Law.com, said: "The FCA is concerned that 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, as the FCA has highlighted, 'the materially inferior rate' that they are likely to achieve. The FCA gave two similar warnings to firms last year and has said that they are actively considering further investigations and action."

In its announcement, the FCA said that consumers may not become aware of the "inferior rate they are likely to achieve" until after they have completed a customer registration process. At that stage in the customer journey the consumers "may be unlikely to shop around", it said.

Heffron said: "The reminder follows the Treasury’s publication on Wednesday of its response to the consultation on the implementation of PSD2 which noted that the government had received several hundred responses from consumers regarding transparency in foreign exchange, calling for firms to display the amount of money they are making from the exchange rate. The government considered that this went beyond PSD2 and nothing could be included in the implementing legislation."

"However, the government did say that it had concluded that there is merit in extending the FCA’s rule-making powers to enable the regulator to combat poor practice among firms regulated under PSD2, protecting consumers, and ensuring that all firms providing payment services can be held to the same standard. The FCA has acknowledged this announcement and said that it intends to consult on these rule making powers as soon as possible. We can therefore expect the FCA to be much more proactive in this area," he said.

While some 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" in light of the FCA's previous investigations, there are still some firms that are "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 regulator said. Enforcement action could follow, the FCA warned.

"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," the FCA said. "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."

The FCA said it plans to consult on "making new rules" to use the new powers that the Treasury is providing it with "as a priority".