Security of Funds at Currencies Direct

15 December 2008 - Currencies Direct


Security of Funds at Currencies Direct

What happens to my money when I make a transaction using Currencies Direct and how secure are my funds during that process?

Specialist foreign exchange providers emerged approximately 12 years ago, lead by Currencies Direct.  Over 800 foreign exchange providers now exist in an industry responsible for sending billions of pounds worth of currency on behalf of thousands of clients. At the heart of it all is the ability of these companies to provide private clients with better currency exchange rates than they would be able to achieve via their bank.

Although the industry is now well-formed new clients are often wary of using a 3rd party specialist instead of their bank, despite the considerable cost savings offered.  This is mainly due to the fact that they are understandably worried about sending their money to a third party.

This prompts many clients to ask the simple question: What happens if my Foreign Exchange provider runs into financial difficulty before my money is delivered to the beneficiary.

The best way to answer this question is to look at the processes behind a typical transaction.  However before I do I should stress that these are the processes used by Currencies Direct and that should you choose an alternative provider the process and hence the security levels may differ. 

A typical transaction through Currencies Direct will follow this structure:

1. Client opens a trading account
2. Client agrees a rate with the currency dealer and the transaction is agreed
3. Currencies Direct purchases the foreign currency and awaits settlement of trade by client
4. Client sends money to Currencies Directís HSBC Client Account
5. Currencies Direct passes the clientís onward payment instructions to HSBC
6. HSBC sends the foreign currency to the end beneficiary

At the point where the client sends money to Currencies Direct is where the perceived risk is felt by the client.  However in reality what happens is that the client sends their money to a Currencies Direct Client Account.  This is very much like an escrow account and as such the money cannot be offset by the bank against Currencies Directís business accounts.  Effectively this means that in the unlikely event of Currencies Direct facing financial difficulties neither the bank nor the creditors of Currencies Direct would have the ability to use client monies held in the Currencies Direct Client Accounts.

This leads onto the question:  What happens if the banking partner gets into financial difficulty?

This is where the importance of the banking partner becomes apparent.  The Financial Services Compensation Scheme states that all private account holders are entitled to be reimbursed the first £50,000 held on deposit by a bank.  Therefore your money is as secure as it would be in your own bank account.  Currencies Direct have partnered with HSBC since they begun trading 12 years ago.  HSBC is arguably the biggest bank in the world and therefore less likely to be infected by the current problems in the banking market.

In summary the clientís funds are protected on two levels.  Firstly they are always handled via a client account and can therefore never be used against the clientís wishes.  Secondly they are protected by the governments Financial Services Compensation Scheme to the same level as they would be if the money was left on deposit in the clientís own bank.


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