Question
Since Crown Currency went into liquidation I have been searching for a safe way to transfer funds abroad safely and at a reasonable cost.I have posted a question before on the subject and if I remember correctly your advice was to look for a company that is FSA authorised rather than registered.
I came across a company called Caxtonfx and they are both regulated and authorised.All seems ok until I came to the link-About Us and security.Under the heading "Is my money safe?" I was troubled when I read that only money from businesses are segregated.
For individuals the money is not segregated.This is a copy of the sentences that I find alarming: "It is important to note that spot and forward foreign exchange transactions are not regulated activities. This means that during the actual settlement process for your fx transaction, your funds are not held in segregated Client Money accounts and is not deemed to be Client Money at that time.
I think what I want to do is buy foreign currency and transfer to an account abroad.This would be classed as spot foreign exchange transaction and is not segregated.Therefore not safe if the company should fail like Crown.
My understanding of the two sentences may not be correct.I would therefore appreciate your understanding of the sentences and if you would still consider foreign exchange companies that are authorised as safe for individuals?Answer
Caxonfx should be one of the safer foreign currency brokers given they are authorised and regulated by the FSA. And they appear to be following FSA rules by holding client money in a segregated client account. But your question highlights a loophole as far as the security of your money is concerned. And I believe this applies to all foreign currency brokers, not just Cantonfx.
The problem arises when Cantonfx passes your money across to a third party (called a ‘counterparty’) in settlement for the foreign currency purchased. At this point it is no longer held in the ‘safe’ segregated client account so if either Cantonfx or the counterparty supplying the foreign currency were to go bust you could, in theory, lose your money. This is what the terms and conditions you’ve highlighted refer to.
Is this likely? In the case of Cantonfx. probably not. They appear to a sensibly run company and currently use Royal Bank of Scotland as the counterparty for their foreign exchange transactions. But this is a worrying issue nonetheless, as any losses will not covered by the Financial Services Compensation Scheme (FSCS) and if there’s one thing to be learned from the last few years it’s never assume never when it comes to large financial companies collapsing.
So, just to clarify. When you send money to Cantonfx it will initially be held in their client bank account, where it should be safe in the event they go bust. Once the foreign exchange transaction takes place with RBS then your money leaves the client account and is sent to RBS for settlement, at which point it is potentially at risk if Cantonfx or RBS goes bust. Once RBS sends your foreign currency back to Cantonfx it will once again be held in the client account, ready to be paid to you.
I hadn’t thought through this issue before so many thanks for raising it with your question. While it might not be sufficient reason to avoid using foreign currency brokers, it does highlight just how careful you need to be when choosing one if you’re not getting your cash over the counter.
Since Crown Currency went into liquidation I have been searching for a safe way to transfer funds abroad safely and at a reasonable cost.I have posted a question before on the subject and if I remember correctly your advice was to look for a company that is FSA authorised rather than registered.
I came across a company called Caxtonfx and they are both regulated and authorised.All seems ok until I came to the link-About Us and security.Under the heading "Is my money safe?" I was troubled when I read that only money from businesses are segregated.
For individuals the money is not segregated.This is a copy of the sentences that I find alarming: "It is important to note that spot and forward foreign exchange transactions are not regulated activities. This means that during the actual settlement process for your fx transaction, your funds are not held in segregated Client Money accounts and is not deemed to be Client Money at that time.
I think what I want to do is buy foreign currency and transfer to an account abroad.This would be classed as spot foreign exchange transaction and is not segregated.Therefore not safe if the company should fail like Crown.
My understanding of the two sentences may not be correct.I would therefore appreciate your understanding of the sentences and if you would still consider foreign exchange companies that are authorised as safe for individuals?Answer
Caxonfx should be one of the safer foreign currency brokers given they are authorised and regulated by the FSA. And they appear to be following FSA rules by holding client money in a segregated client account. But your question highlights a loophole as far as the security of your money is concerned. And I believe this applies to all foreign currency brokers, not just Cantonfx.
The problem arises when Cantonfx passes your money across to a third party (called a ‘counterparty’) in settlement for the foreign currency purchased. At this point it is no longer held in the ‘safe’ segregated client account so if either Cantonfx or the counterparty supplying the foreign currency were to go bust you could, in theory, lose your money. This is what the terms and conditions you’ve highlighted refer to.
Is this likely? In the case of Cantonfx. probably not. They appear to a sensibly run company and currently use Royal Bank of Scotland as the counterparty for their foreign exchange transactions. But this is a worrying issue nonetheless, as any losses will not covered by the Financial Services Compensation Scheme (FSCS) and if there’s one thing to be learned from the last few years it’s never assume never when it comes to large financial companies collapsing.
So, just to clarify. When you send money to Cantonfx it will initially be held in their client bank account, where it should be safe in the event they go bust. Once the foreign exchange transaction takes place with RBS then your money leaves the client account and is sent to RBS for settlement, at which point it is potentially at risk if Cantonfx or RBS goes bust. Once RBS sends your foreign currency back to Cantonfx it will once again be held in the client account, ready to be paid to you.
I hadn’t thought through this issue before so many thanks for raising it with your question. While it might not be sufficient reason to avoid using foreign currency brokers, it does highlight just how careful you need to be when choosing one if you’re not getting your cash over the counter.
Read this Q and A at http://www.candidmoney.com/questions/question396.aspx
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