Crown Currency Exchange

Debate between Dominic Raab and Mark Hoban

Tuesday 7th December 2010 Commons Chamber

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I congratulate the hon. Member for Wells (Tessa Munt) on securing a debate on this important topic. The fact that there are 40 Members here tonight demonstrates the widespread interest across the House in what has happened to Crown Currency Exchange. I am glad to have the opportunity to explore the collapse of Crown Currency Exchange and touch more broadly on how foreign exchange services are regulated.

I share the hon. Lady’s concern about the impact of the failure of Crown Currency Exchange. I have enormous sympathy for the 13,000 people who have been affected by its collapse. They are honest, hard-working people who have been hit hard and, in some cases, the losses have been considerable. I welcome the work of the administrators in investigating the issues surrounding Crown’s collapse, and their efforts to recover as much money as possible for the consumers affected. The administrators have written to the creditors, and have held a creditors’ meeting to discuss their proposals. They will continue to review Crown’s trading operation, its financial position and the conduct of its directors. I look forward to receiving the administrators’ report, so that the Government can consider what lessons can be learned from it and assess what might need to be done to protect customers in future.

Crown Currency Exchange operated an online bureau de change—put simply, it bought and sold currency over the internet, which is quite normal in modern day currency exchanges. However, what separated Crown from other operators was that it was among a minority of companies whose customers paid for their foreign currency weeks or months before they were due to receive it. Some other aspects of its operations were also unusual. It offered much better rates than those on the high street and enticed customers by offering special deals purporting to be from cancelled contracts that did not exist. It did not hedge its exposure to foreign exchange rate changes, so it was at risk if sterling moved against it, and it took payment in full and in advance, for up to a year before delivery. In addition, it did not accept payments by debit or credit card. Crown’s business model was an outlier, which posed risks to the firm and, as we know, to consumers. The way in which Crown operated meant that consumers lacked protection because they were unable to pay by debit or credit card.

I do not wish to prejudge the causes of Crown’s failure. The administrators’ final report, which is expected in a few months, will go over that in detail, and look at the conduct of the company’s directors. Let me touch on the regulatory questions raised by the failure. As we have heard, Crown Currency Exchange was registered by the Financial Services Authority as a small payments institution, which means that it managed payments from one person to another. Such institutions may handle the remittances from migrant workers to be sent home to their families, or they may offer an internet service for making payments in competition with the banks.

European legislation—the payment services directive—provides for light touch regulation of small payments institutions. That was the case with Crown, which had some reporting obligations to the FSA. However, the FSA was not required to exercise any prudential regulation, such as oversight of capital requirements over Crown; it was required only to oversee its payments. Buying and selling foreign currency is not a regulated activity, so Crown’s foreign currency sales were not regulated by the FSA. The regulatory requirements relating to foreign currency sales are limited to quoting rates clearly, which the FSA oversees, and complying with money laundering legislation, which Her Majesty’s Revenue and Customs oversees. The money laundering rules are designed to fight terrorism and crime, not to protect customer deposits. That is why neither the FSA nor HMRC was in a position to investigate or address any problems with the business model of Crown Currency Exchange.

[Mr Dominic Raab (Esher and Walton) (Con)]

A number of my constituents have also lost money in this case. I recognise the limited remit of the FSA, but should it have registered CCE when, as I understand it, one of CCE’s directors had a criminal conviction? Was that an example of maladministration, or will that be reviewed?

[Mr Hoban]

Often in these cases—I do not want to go into detail on this—the FSA is dependent on disclosure by directors. As the hon. Lady said, the FSA does not have the power to access criminal records to enable it to find out whether directors’ disclosures are accurate.

The question that we need to address is why foreign exchange services are not more tightly regulated. Traditionally, buying and selling currency is the same as buying and selling any other commodity, whether it is gold and silver or food and drink. With the exception of Crown, this kind of trading has been, and remains, a low-risk business. It is something that millions of us do day in, day out, whether at the post office, in banks or at bureaux de change, without a problem. But Crown’s business model was different, and what should have been straightforward transactions led to substantial losses for its customers. I accept, of course, that Crown has inflicted substantial losses on customers. The Government are anxious to learn the lessons from this failure and to take what action may be needed, including regulatory changes.

Equitable Life

Debate between Dominic Raab and Mark Hoban

Thursday 22nd July 2010 Commons Chamber

[Mr Hoban]

Indeed I can give that commitment. I am also very mindful that at points over the previous nine years, the previous Government could have acted to bring justice to policyholders but chose not to do so. I am afraid that that is another aspect of that Government’s legacy that the Conservatives have to sort out.

[Mr Dominic Raab (Esher and Walton) (Con)]

I welcome the fact that the Minister has moved so swiftly. Equitable Life victims in Elmbridge, like those across the country, were subject to the most shabby treatment by the last Government and no amount of synthetic outrage now can hide that. They feel raw and their trust in government is almost totally undermined. May we have further reassurance that there will be close consultation with the victims in the weeks ahead, especially on the vital issue of quantum and the mooted cap?

[Mr Hoban]

My hon. Friend makes an important point. Confidence in this process was significantly eroded by the previous Government. I hope that what I have announced today will enable policyholders to turn a new page and recognise that we are determined to be much more open and transparent in our approach, and that will help to build the credibility of the process.