In February 2021, the FCA publicly censured Premier FX Limited (in liquidation) for breaching the Payment Services Regulations 2009 ("PSRs 2009") and the Payment Services Regulations 2017 ("PSRs 2017"). The FCA found that Premier FX had seriously misled customers by making misrepresentations regarding the services it was authorised to provide and how it held customers' money. The FCA has stated that, were it not for the fact that Premier FX is currently in liquidation and there is a significant liability to its creditors (which includes a number of customers), it would have imposed a substantial financial penalty on it as a consequence of its serious failings.
Premier FX was incorporated in April 2006. The sole shareholder and, from 2009 until his death shortly before Premier FX ceased trading, the sole director, was Peter Rexstrew. From 25 February 2011, it was authorised by the FCA as an authorised payment institution and had permission to provide the payment service of money remittance (i.e. the transmission of money from a payer in one currency to a payee in another currency via the bank account of a payment services provider, in this case, Premier FX). That was the only payment service that Premier FX was permitted to provide. Crucially, Premier FX was only permitted to accept funds in conjunction with a payment order for the funds to be transferred onwards (either immediately or on a future date). Premier FX was not permitted to retain customers' funds indefinitely or to accept deposits, which is a separate, regulated activity.
Nevertheless, Premier FX represented to customers that:
- it was able to hold funds indefinitely without the need for a payment order for onward transfer;
- their funds would be held in secure, segregated client accounts; and
- their funds would be protected by the Financial Services Compensation Scheme ("FSCS").
However, none of those matters were true. In fact:
- Customer funds were not held in secure, segregated client accounts. Instead, only the main sterling account was designated as a 'client account'. There was no designated client account in any of the other currencies that Premier FX traded and the accounts were not secure.
- Customer funds were not segregated. Instead, they became comingled with the funds of other customers and Premier FX's own funds once they were credited to Premier FX's account. Customer funds were used to make payments to, or on behalf of, other customers or to meet Premier FX's own business expenses, such as salaries and maintenance. The FCA found that there was no clear explanation for how or why funds were moved between accounts (a process which was largely controlled by Rexstrew), and the overall appearance was "one of disorganisation and disarray, where Premier FX's accounts were not used for their intended purposes."
- Customers' losses were not covered by the FSCS, which does not apply to authorised payment institutions providing money remittance services under the PSRs or to firms which may be acting outside their permitted activities.
Nevertheless, many customers paid significant sums to Premier FX (in some cases amounting to hundreds of thousands of pounds, euros or US dollars) without payment orders for onwards transfer, and these sums were held by Premier FX.
In addition to the activities set out above, the FCA identified many instances of Premier FX customers paying funds directly to Rexstrew's personal accounts in the UK, Portugal and Spain, and although some of these funds were transferred to Premier FX, that was not the case for all of the funds Rexstrew received. Further, Rexstrew used funds to settle payments from other customers and went to great lengths to encourage customers to keep their funds with Premier FX, even telling one customer that he was prepared to guarantee their funds over the FSCS limit and offering to pay some customers interest. Premier FX also offered a "worse case exchange rate" deal. Under this, if customers transferred significant sums, an exchange rate was fixed on the day of the transfer. However, when the funds were later remitted, Premier FX would exchange the funds at the higher of the spot rate on the day or the agreed fixed rate.
Rexstrew died on 16 June 2018. His children were appointed as directors and, over the course of the weeks that followed, customers began to contact Premier FX and ask for confirmation of the balance of funds held by the firm. Staff were unable to provide those confirmations and in some cases were even unable to find records of the client relationships. Although the staff of Premier FX attempted to respond to customers' queries, and repaid funds to some of the customers, as the number of requests increased, Premier FX realised that the funds it held were insufficient to cover all customer claims. Accordingly, six weeks after Rexstrew's death, Premier FX ceased trading and reported the matter to the FCA on 1 August 2018. As at 14 December 2020, the liquidators had received claims from 136 creditors for an estimated total of over £9 million. None of the customers' losses are covered by the FSCS and liquidators have only identified assets with a value of approximately £1.84 million.
Breaches of the PSRs
Authorised payment institutions are required to safeguard payment service users' funds. That includes:
- segregating funds from all other funds as soon as they have been received; and
- if funds are held at the end of the business day following the day on which they were received, they must be deposited in a separate "safeguarding" bank account.
Further, authorised payment institutions should not hold customer funds without a payment order for onward transfer. Failure to obtain such a payment order may amount to accepting deposits which is a separately regulated activity.
Accordingly, the FCA found that Premier FX breached the PSRs in that:
- none of the accounts it operated in the UK in the relevant period were designated as "safeguarding" accounts and, with the exception of three accounts, Premier FX took no steps to ask its bank to acknowledge that it had no rights (e.g. a right of set off) or interest over the funds in the accounts. Accordingly, in the event of Premier FX's insolvency, there was a material risk that any customer funds held by Premier FX would not be readily identifiable and could be subject to claims from other creditors; and
- Premier FX actively encouraged customers to pay funds into payment accounts without the need for a payment order for onward transfer and agreed to hold funds without such payment orders, in some cases, even offering to pay interest on funds it held. That may have amounted to carrying on the regulated activity of accepting deposits without permission.
The FCA has published relatively few Final Notices regarding the PSRs (indeed, prior to the Final Notice concerning Premier FX, it had not done so since July 2019). It remains to be seen whether the conduct of Premier FX and, in particular, Rexstrew, was so egregious that it was necessary to investigate and ultimately censure the company or rather that this, along with the protections offers by the FSCS, is a new area of focus for the FCA. If the latter, that would be consistent with the FCA's Dear CEO letter dated 18 May 2021 in which it asked e-money firms to write to customers and remind them that FSCS protection does not apply to e-money accounts.
Regardless of the rationale for the public censure, it is unlikely to be of much comfort to Premier FX's former customers who will now have to make a claim against Premier FX which will be assessed by the liquidators.
Separately, this matter demonstrates the critical importance for firms that are authorised to carry out the payment service of money remittance to ensure that:
- alongside the funds, firms receive payment orders for the funds to be transferred onwards (either immediately or on a future date); and
- funds are appropriately secured and segregated.