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					                   Crown Currency Exchange (CCE)
                   Standard Note:    SN/BT/5736
                   Last updated:     17 February 2011
                   Author:           Tim Edmonds
                   Section           Business and Transport



This note sets out a brief history of the collapse of the travel currency firm Crown Currency
Exchange which has gone into administration.

Information on other financial institutions can be found on the relevant topical page of the
Parliament website.




Contents

1    What is Crown Currency Exchange?                                                        2

2    What happened to it?                                                                    2

3    How was CCE regulated?                                                                  4

4    What can customers do?                                                                  5




This information is provided to Members of Parliament in support of their parliamentary duties
and is not intended to address the specific circumstances of any particular individual. It should
not be relied upon as being up to date; the law or policies may have changed since it was last
updated; and it should not be relied upon as legal or professional advice or as a substitute for
it. A suitably qualified professional should be consulted if specific advice or information is
required.

This information is provided subject to our general terms and conditions which are available
online or may be provided on request in hard copy. Authors are available to discuss the
content of this briefing with Members and their staff, but not with the general public.
1       What is Crown Currency Exchange?
Crown Currency Exchange (CCE) described itself as follows:

        Crown Currency Exchange Limited is an independent foreign exchange specialist. We
        are a leading alternative to the high street banks when it comes to providing foreign
        exchange at highly competitive rates.

        Our aim is to provide an efficient and professional service to our customers, who are
        both individuals and businesses wishing to save money on foreign currency
        transactions.1

CCE provided three main services to customers: foreign currency (notes) up to £10,000;
travellers cheques (supplied by American Express); and credit transfers (international and
domestic) for amounts over £10,000.

2       What happened to it?
The precise details of what caused CCE to collapse have not yet been published in any
official way – police investigations amongst others continue. A detailed account of known
events can be found in the joint Administrator‟s Report to Creditors published by the
insolvency firm MCR. This can be found here.2 A summary of events from the BBC News
website is shown below:

        Crown Currency Exchange, one of the UK's biggest foreign exchange websites, has
        collapsed - blaming the downturn in the travel market. Administrators MCR said that an
        estimated 13,000 consumers would be directly affected. These people should not
        expect an early resolution in the case and a quick return of money, administrators said.

        The business, based in Hayle in Cornwall, was established by husband and wife Peter
        and Susan Benstead five years ago. It allowed individuals and business customers to
        pre-order foreign exchange at a set price up to a year in advance, with amounts of
        between £300 and £10,000 available.

        But its bank accounts were frozen by Barclays at the weekend, barring it from
        withdrawing or transmitting any money to customers. And administrators from MCR
        and SPW were appointed on Monday. They said the business had processed
        hundreds of millions of pounds worth of foreign currency in the last five years,
        providing travel money in 80 different currencies, as well as travellers' cheques and
        money transfers.

        "Like many operators in the travel sector, it has experienced a difficult trading
        environment during the course of the past 12 months which has been exacerbated by
        a further downturn and general tightening of the travel market," said administrator Paul
        Clark, of MCR.

        The administrators are contacting all those affected to advise them on their individual
        situation, but these people could also contact the company. "I have no doubt that they
        will be understandably concerned about their own position and we recommend that
        they contact the company directly," Mr Clark said. "We fully appreciate the difficult
        position in which many will now find themselves in - many in the build-up to holidays or
        business trips, as well as money transfers associated with second home purchases.

1
    CCE Archive website, webshot taken 17 December 2007
2
    Despite requests, MCR cannot produce an electronic version capable of being incorporated in part in this
    note. The full version can be found at: http://www.mcr.uk.com/assets/_files/documents/nov_10/2_CCE_-
    _Report1.pdf



                                                        2
        However the administration process is in its early days and we cannot guarantee an
        early resolution for those looking for a quick return of their money".3

The Daily Mail reported on the collapse as follows:

        When Crown Currency Exchange, one of Britain‟s biggest travel money companies,
        collapsed two weeks ago with the loss of more than £20 million, its 13,000 customers
        were told it was due to the global economic crisis. However a Financial Mail
        investigation has discovered it was being run like a Ponzi scheme, with desperate
        management offering impossibly high, loss-making rates of exchange while the
        company hurtled towards collapse.

        The investigation suggests that as Crown struggled against the tide it radically inflated
        its exchange rates in order to suck in new customers and their cash. Thousands of
        people made payments to the company in its dying days and the money appears to
        have been sent straight out to other Crown clients who had earlier booked currency. If
        so, it was an eleventh hour operation that was being conducted as a variation of a
        Ponzi scheme. It would mean that new customers were being cynically enticed by
        abnormally high rates of return and their money was being used to pay off earlier
        clients in order to give the impression that the company was viable.

        But the ploy failed and the business – which Financial Mail cautioned against in
        October last year – had its accounts frozen on September 29. It was placed in
        administration on October 4.

        [...]

        If it is proved that Crown continued trading while insolvent, then [Crown‟s founder and
        majority owner Peter Benstead] and [Crown‟s other owner, Edward James] could face
        prosecution. Lawyers are already circling, offering to assist Crown‟s 13,000 creditors. It
        is the biggest-ever collapse of a foreign exchange firm and is expected to take several
        years to be resolved.

        Crown had long raised eyebrows in the foreign exchange industry because of its
        market-beating rates, but in its final days the rates soared even higher. Furious Steve
        Sempie, a 30-year-old foster carer, has a paper trail proving how Crown‟s rates were
        being manipulated. Emails show that at 2.30pm on September 16, Crown offered
        Steve, who wanted to change £900 into US dollars, a rate of $1.5554. Steve did not go
        ahead. Then at 1.45pm on September 22, Crown quoted him a rate of $1.6055. Steve,
        tempted by the better rate, ordered currency. His money is now lost.

        Financial Mail asked Travelex, a reputable currency firm, for the rates it was offering at
        these times. On September 16, its rate for online orders was $1.5201 for £1. On
        September 22, it was $1.5262. Even more tellingly is that on the second date, as
        Crown‟s problems mounted, the pound-dollar „spot rate‟ was just $1.5671. The spot
        rate is the price big financial institutions charge each other on large transactions and
        was probably the price that Crown would have had to pay. So its offer to Steve would
                                           4
        have triggered immediate losses.

Information on the administration process can be found on the administrator‟s website here.

On 7 December 2010 police arrested the two directors of CCE, Peter Benstead and Edward
James in connection with the failure of CCE. Detectives expected “that this will be a


3
    “Crown Currency Exchange collapses”, BBC News Online, 4 October 2010
4
    “More to Crown Currency Exchange collapse than meets the eye”, The Daily Mail, 17 October 2010



                                                     3
protracted inquiry that may take many months. It is anticipated that there are approximately
13,000 victims."5

3        How was CCE regulated?
The Financial Services Authority (FSA) only became responsible for currency exchange firms
in November 2009. This was as a result of the EU Payment Services Directive (2007/64/EC)
which introduced wide ranging rules covering many aspects of the money transmission
system in Europe.

Hence the regime introduced by the FSA is very new. It is outlined in an FSA document
published in May 2010:

         Being a small PI [payment institution] is an option available to businesses whose
         average turnover in payment transactions does not exceed €3 million per month. The
         registration process is cheaper and simpler than authorisation and has no ongoing
         capital requirements, but there are no passporting rights for small PIs. The conduct of
         business requirements still apply, as does access for small PIs‟ eligible customers to
                                                  6
         the FOS [Financial Ombudsman Service].

It was this option that CCE took and hence it is described as being registered rather than
being authorised by the FSA. Apparently this distinction was not made clear on the CCE
website. The document continues with a requirement on a registered company:

         If there is any material change, deficiency or inaccuracy in the information provided in
         connection with an application before we have issued our decision on it, a firm must
         notify us. The requirement also applies to material changes to supplementary
         information provided due to an earlier material change.

         The notification must include details of the change, the complete information or a
         correction of the inaccuracy (as the case may be) and must be made without undue
         delay. In the case of an anticipated material change that has not yet taken place, the
         applicant must provide details of the likely change as soon as they become aware of
             7
         it.

The checking done by the FSA for a registered company is significantly less than that for an
authorised one. As the first paragraph states the company is required to meet the FSA‟s
conduct of business rules, which set out broad principles of business.8 Thus the FSA would
have asked for the names of the directors of the firm and checked to see if they were fit and
proper people to run a company. However, more detailed questions about CCE would not
have been routinely asked for a firm applying for registration only.

An adjournment debate by Tessa Munt addressed the regulatory issues raised in this case. 9
Replying to the points raised about the role of the FSA the minister, Mark Hoban, said:

         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

5
    Quote from BBC News website 7 December 2010
6
    FSA, The FSA’s role under the Payment Services Regulations 2009, May 2010, para 3.3
7
    ibid., paras 3.8-3.9
8
    part of the FSA Handbook, these are the COBS 2 obligations – „Acting honestly, fairly and professionally‟;
    „Information disclosure before providing services‟; „Inducements‟; and „Agent as client and reliance on others‟
9
    HC Deb 7 December 2010 c281



                                                         4
         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.

         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. 10

4        What can customers do?
Unfortunately, because the firm is not authorised by the FSA, the Financial Services
Compensation Scheme (FSCS) does not cover this collapse.

A number of CCE customers who have lost money have formed an Action Group. The Action
Group has a letter template that customers can use to contact their MP. The Action Group is
currently reviewing the possibility of taking legal action against both the FSA and against
CCE‟s bankers (Barclays). Barclays are accused of allowing CCE to trade when they knew it
was technically insolvent.

As stated above, the company is currently in administration; the administrators are MCR Ltd.
The normal insolvency procedures will apply. The administrators have provided a standard
„proof of debt‟ form; any customer who believes they are owed money from the company
should as a first step complete this form.




10
     Ibid c285



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