IT was upsetting to read about the expats caught up in the ‘brokers muddle’ on the front page of the last issue of the Olive Press.
Hopefully administrators unravelling the ‘company book’ of Premier FX will not be delivering further bad news… and can soon throw out some life buoys to those customers left in choppy waters.
It’s the very least we’d expect for an established financial company trusted with clients’ money. And given the UK’s very strict Financial Conduct Authority (FCA) is now going through the foreign exchange company’s affairs I’d hope for a good outcome.
So how do you recognize a good broker?
Before I answer that question I went to Wikipedia, which defined ‘a broker’ as follows:
* A broker is an Independent party, whose services are used extensively in some industries. A broker’s prime responsibility is to bring buyers and sellers together and thus is the third party facilitator between a buyer and seller. An estate agent or stockbroker are familiar examples.
Regulation plays a key role in the financial sector, therefore watch for the FCA membership number on any FX company’s website and any correspondence their representatives send to you when engaging in business.
Never be scared to ask representatives about their company’s regulatory status and safety of your funds: Good companies are always happy to answer, and should be definitive in their response.
Safety of your funds should be paramount when making large foreign payments, and all good FX companies segregate client monies in a ring-fenced account, so it does not form part the brokers profits or losses.
Lawyers have similar segregated accounts as well, by the way, known as Clients Trust Accounts.
Documentation to prevent money laundering is very strict in recent times, and getting stricter, as brokers understandably want to know who you are, before acting on your behalf.
Therefore, the registration criteria will usually be thorough!
This protects you and the broker alike…and if the registration process is not detailed, loose or slack, you should perhaps wonder why?
Lastly, and the most commonly asked question about brokers, and actually it’s the justification for their very existence is ‘the price’! The one you get for euros, dollars, yen, whatever.
Brokers will always give you a better price than banks, as they have commercial terms with the principle party (they buy wholesale amounts of currency), unlike individuals or even companies.
Also they will go to more than one bank to get better prices, hence offering you a better quote.
Probably the most hazardous sign to watch out for is when a broker offers a better price than ‘the market’ known as the ‘interbank rate’, because it will mean they are likely to be taking risks themselves.
They should be buying currency at the moment you buy your currency…it is a back to back transaction which has NO RISK. They should not be waiting for better exchange rates. That is gambling with YOUR money.
I have been working in the financial industry for nearly 20 years, and there has never been more protection for clients what with the FCA, Her Majesty’s Customs and Excise, and of course the Government itself. There are also internal compliance departments to police activities.
However, there will always be feral and rogue institutions, company directors who behave improperly.
And usually, in my experience the person most affected is the man on the street.
I sincerely hope this sad chapter in FX history, is quickly brought to a close.
And I hope to be writing a more cheerful story in my next column in October.
Please feel free to contact me at Key Currency if you have any questions regarding choosing you foreign exchange broker.
Call +44 (0)1872 487 500