Holidaymakers have been advised against buying foreign currency online from non FSA-regulated firms following the collapse of Crown Currency Exchange.
It has emerged that the company folded owing £20 million to around 13,000 customers, including some who had been expecting to receive thousands of pounds worth of currency to pay for trips.
Customers of CCE have been told by the administrators MCR that they face little prospect of getting all their money back with just 15p for every pound owed expected to be paid out.
Transactions were not covered by the Consumer Credit Act because the firm used bank transfers rather than taking credit or debit card payments.
At the weekend advice in national newspapers said customers should be wary of buying foreign exchange over the internet and they should use FSA-regulated firms that keep client money in segregated accounts so it can’t be lost.
Rupert Lee-Browne, vice chairman of the UK Monday Transmitters Association, told The Sunday Times: “You should always ask the company where the money is held and only use companies that keep your money in a client or segregated account, as opposed to their main business account.”
Although CCE was registered with the FSA new EU legislation which came in last year means only the actual transfer is regulated, not how the cash was handled once the forex firm had it.
The FSA dealt with CCE as a small payment institution and so it was not required to operate separate client accounts.
CCE, which collapsed last week after telling its bank Barclays that it was insolvent, offered a cut-price pre-order service for foreign exchange of between £300 and £10,000 pre transaction.
It was able to undercut mainstream banks by taking forward risks on the currency it bought. The Treasury has said it would not be appropriate to regulate this area of business because most businesses do not take such risks.