Currency Exchange and International Transfers for UK Expats

Any firm providing money remittance or currency conversion services as a regular commercial activity in the UK must be authorised or registered with the FCA as an authorised payment institution or e-money institution, unless exempt. The FCA maintains the Financial Services Register (register.fca.org.uk) where consumers can verify a firm's authorisation status. Authorised payment institutions must comply with conduct of business requirements, including the Consumer Duty, and operational security standards. Source: Payment Services Regulations 2017 (SI 2017/752); FCA electronic money and payment institutions page.

When a customer executes a spot transfer, the exchange rate is the market rate at the moment of execution. If the customer is quoted a rate but does not execute immediately, the rate will differ when they do transact. Forward contracts allow a customer to fix the exchange rate for a transfer on a specified future date, typically for large or time-critical transfers such as a property purchase abroad. The fixed rate removes uncertainty: the customer knows the sterling cost (or local-currency receipt) regardless of market movement. However, a forward contract also removes the possibility of benefiting from a favourable rate move. Some providers require a deposit or margin to hold a forward contract open. Whether entering a forward contract is appropriate for a given individual depends on their needs, financial position, and the specific terms offered by the provider: this is a matter a regulated specialist can assess. Source: FCA Handbook, PERG 13.4; HMRC Corporate Finance Manual CFM13140.

The total cost of a currency transfer is the combination of any fixed transaction fee and the spread embedded in the exchange rate. The FCA has found examples of firms that charge no fixed fee but apply a material markup to the rate, and that present only the interbank rate in conversion tools without clearly disclosing the actual customer rate. Under the Consumer Duty, firms must disclose the exchange rate applied, any markup, fixed and variable fees, and the final amount the recipient will receive, before the customer commits. Source: FCA Consumer Duty international payment pricing transparency good and poor practice.

Client funds held with an authorised payment institution while a transfer is being processed are subject to safeguarding requirements under regulation 23 of the Payment Services Regulations 2017. The firm must hold relevant funds separately from its own money. Upon insolvency, payment service users' claims on the safeguarded pool take priority over other creditors. However, the FSCS has confirmed that funds held with payment institutions and e-money institutions are not covered by the FSCS. Recovery in the event of firm failure takes place through insolvency proceedings, which the FSCS has noted could take up to three months or longer depending on how the funds are held, and full recovery is not certain. Source: FSCS; PSRs 2017 regulation 23.

The UK State Pension can be paid into an overseas bank account in local currency, in which case a 0.39% conversion charge applies at the time of payment. Alternatively, the State Pension can be received into a UK sterling account, avoiding the conversion charge at the payment stage, but requiring the recipient to arrange their own conversion and transfer subsequently. Source: gov.uk State Pension if you retire abroad.