Should this FCA statement alarm the UK’s fintech money apps?

By Ryan Weeks on Friday 21 July 2017

Alternative LendingDigital BankingSavings and Investment

The FCA issues statement of concern on use of the interbank rate in online currency conversion tools.

FCA issues statement of concern on use of the interbank rate in online currency conversion tools.

Some of the best-known money apps in the UK major on their ability to offer users access to currency conversion at the interbank rate. Revolut, for example, says that its exchange rates “mirror the Spot Interbank exchange rate”. The app has attracted hundreds of thousands of users on the strength of that messaging alone, and has now morphed into a full-blown banking challenger – one which recently clinched a $66m Series B to fund global expansion.

Revolut is not alone in offering its customers the interbank rate or something like it. But whichever the term of reference, effectively fee-free currency conversion at a rate previously available only to the major banks is the insinuation – and it’s one of the most powerful lures in fintech.

But the City regulator might be about to rain on the parade. The FCA published a statement this week stating that it is concerned that online currency converters are behaving in “misleading way”.

“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 the materially inferior rate that they are likely to achieve,” read the statement.

It went on to note that consumers may not become aware of the inferior rate of exchange achieved until after some form of registration process has been completed, after which time they are unlikely to shop around. It is somewhat unclear, from the statement alone, why the regulator believes that the exchange rate achieved by consumers is likely to be inferior to the interbank rate. It is also unclear exactly which companies the regulator is taking aim for. 

But the statement had to it the unmistakable air of threat. As if by way of reminder, it included the line: “The FCA has a wide range of powers with which to address breaches of our requirements, including by the imposition of financial penalties.”

The regulator said that it had previously identified a number of payment institutions that were advertising usage of the interbank in an inappropriate way, and that some of these have since taken steps to ensure that they do not mislead customers. But it added that a number of firms continue to use the interbank rate in a “potentially misleading way”.

The FCA is thus planning further investigations and action in this area, and will be paying especially close attention to firms that continue to disregard its warnings.

The statement ended with a final note of warning: “Additionally, following engagement with HM Treasury, and as announced by HM Treasury today, the FCA’s rule making powers are to be extended in relation to payment services, which will allow us to apply rules to financial promotions issued by payment institutions and e-money institutions. We plan to consult on making new rules using these powers as a priority.”

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