When FSCS protection does not apply

thrifty_pete

masonic wrote: »

There are also services that allow customers to hold money in foreign currencies in order to lock into, or wait for, a better exchange rate.

I don't understand this - giving two scenarios:
1. I've just sold my property on the Algarve and want to convert my EUR into GBP - so I take advantage of the cheap pound and transfer the money immediately. Despite this a fintech company could say "give me your €150k now and in 6 months I will give you an even better rate than today."
2. I want to buy a holiday cottage in Provence and as the GBP is weak, I find a company who says "give me your £150k now, and I promise to give you an exchange rate better than today's rate in 6 months' time"
So under both scenarios you would be pretty wary wouldn't you? Handing over large sums of money to a non-bank?

Reaper

thrifty_pete wrote: »

So under both scenarios you would be pretty wary wouldn't you? Handing over large sums of money to a non-bank?

Not if people believed their money was safe. This is what Premier FX said URL="http://theislander.net/premier-fx-international-currency-transfers-5/"]source[/URL:

Premier FX is a UK Limited Company with offices in London, Spain and Portugal. We are regulated by UK Revenue & Customs and authorised by the Financial Conduct Authority (FCA). Client funds are held in secure, segregated accounts at Barclays Bank in London and are fully protected by law.

People understandably thought that meant their money was ring fenced.

masonic

thrifty_pete wrote: »

So under both scenarios you would be pretty wary wouldn't you? Handing over large sums of money to a non-bank?

I'd be much less wary holding money in EUR in my multi-currency stockbroker account between selling some investments and buying others. But I know my stockbroker is authorised to hold Client Money and therefore must follow CASS rules. That's not just because they told me so, but because I independently verified it.

When large sums of money are involved, it pays to know exactly with whom you are dealing.

londoninvestor

thrifty_pete wrote: »

I don't understand this - giving two scenarios:
1. I've just sold my property on the Algarve and want to convert my EUR into GBP - so I take advantage of the cheap pound and transfer the money immediately. Despite this a fintech company could say "give me your €150k now and in 6 months I will give you an even better rate than today."
2. I want to buy a holiday cottage in Provence and as the GBP is weak, I find a company who says "give me your £150k now, and I promise to give you an exchange rate better than today's rate in 6 months' time"
So under both scenarios you would be pretty wary wouldn't you? Handing over large sums of money to a non-bank?

That's logically correct, but scenario #1 is the more likely one, because UK residents are well versed in their many options for where to deposit GBP. If they want to deposit EUR, there are fewer possibilities and (most) Brits are less familiar with them - so the temptation to use one of these outfits is greater.

thrifty_pete

londoninvestor wrote: »

If they want to deposit EUR, there are fewer possibilities and (most) Brits are less familiar with them

That's what I don't understand, why would you want to hold EUR now if you mainly operate in GBP? You's want to sell the EUR asap as the exchange rate is very favourable right now. So it seems irrational to hold large sums of EUR on deposit, earning no interest when you could bring it back to the UK as GBP and invest it in things you're familar with.
Generally I find it funny in the UK where regulation on the banks is light-touch compared to Germany or France, and yet the general public here are much more trusting of financial organisations. It seems to wrong way around to me!
Only transfer money you can afford to lose, or break up large sums into little chunks and only send the next one after the previous one has arrived safely.

Linton

thrifty_pete wrote: »

That's what I don't understand, why would you want to hold EUR now if you mainly operate in GBP? You's want to sell the EUR asap as the exchange rate is very favourable right now. ....

You believe the exchange rate is very favourable, some people believe it could get a lot worse.

thrifty_pete

Linton wrote: »

You believe the exchange rate is very favourable, some people believe it could get a lot worse.

You may be right. Perhaps holding EUR long term is a good hedge anyway. I've heard some ex-pats call the Euro the Yo-yo but that isn't fair, it is the pound which is prone to instability!

muze77

Dear Masonic, thanks for your great post. It does leave me confused. I checked a well known SIPP provider, fidelity. Using your two criteria, they seem to fail the test? Both Fidelity UK and Fidelity International lack the Client accepting deposits criterion.

Now, they accept cash when people transfer money into their SIPP. So this leaves me with the question, even if they forward it on to a big UK Bank with the right criteria, would FSCS protection apply whilst it is not yet transferred?

I checked their website but it is not clear to me. Many thanks for any clarifications!

By the way,I cannot post a direct link yet as I am too new here but in any case, the wording on their site used to mention cash accounts but now that refers to a more general statement that is not clear to me at all!

masonic

muze77 wrote: »

Dear Masonic, thanks for your great post. It does leave me confused. I checked a well known SIPP provider, fidelity. Using your two criteria, they seem to fail the test? Both Fidelity UK and Fidelity International lack the Client accepting deposits criterion.

Now, they accept cash when people transfer money into their SIPP. So this leaves me with the question, even if they forward it on to a big UK Bank with the right criteria, would FSCS protection apply whilst it is not yet transferred?

I checked their website but it is not clear to me. Many thanks for any clarifications!

By the way,I cannot post a direct link yet as I am too new here but in any case, the wording on their site used to mention cash accounts but now that refers to a more general statement that is not clear to me at all!

Investment firms do not typically accept deposits - that is, they don't offer their own savings and bank accounts. Instead, they have the Client Money permission, which requires that they cannot use your money to finance their business, and as a result you have FSCS protection if they go into administration and can't return it to you. They are also required to hold this money in a bank that has FSCS protection if it should go into administration.

FIL Investment Services (UK) Limited has the "Client Money" permission, so any cash held in nominee would be subject to FSCS protection if either Fidelity or the nominee bank went bust.
https://register.fca.org.uk/ShPo_FirmDetailsPage?id=001b000000MfFKaAAN

muze77

I understand you are querying why Fidelity does not show as authorised for taking deposits. This is because FSCS covers deposit taking and investments separately, so any investments you may hold in the future with us would be covered. Although we are not authorised to take deposits you are not making the deposits directly with Fidelity. We have cash available as an asset and this is held by Barclays and Lloyds, it's Barclays and Lloyds who are authorised to accept deposits and if one of these companies went in to liquidation you will be covered under the financial services compensation scheme (FSCS) with them.

When we collect money from your debit card, the money does not go in to a bank account in our own name and goes in to a ring fenced client money account - which is held in a cash deposit account.

Thanks Masonic for answering. In the meantime, I had decided to check with Fidelity itself, and the above answer seems to confirm the latest post above from Masonic. Many thanks for raising awareness of the issue. Thankfully, in this particular case, all seems ok for the moment..