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Does regulation really raise the cost of international money transfer?

Financial services regulation is a careful balancing act – it's essential to keep your money safe, but it can quickly become expensive for businesses. The Economist recently argued that regulation is one of the international money transfer industry's biggest problems for exactly this reason. For every foreign exchange broker or peer-to-peer platform offering fantastic value, there's a piece of legalisation that pushes up the price of sending money overseas. 

But to answer the question with a straightforward "yes" would be to misunderstand cost. These rules, after all, are what safeguard our funds – a €3,000 transfer gone missing isn't exactly cheap. Ultimately, regulation itself doesn't raise the cost of your transfers; it's poor regulation that can be problematic. 

International money transfer regulations: what they are

International money transfers have been subject to a new wave of regulation in recent years. The EU's Wire Transfer Regulations is designed to prevent money laundering activities and aims to regulate those who provide 'transfer of funds' services.

Over in the US, a 2012 amendment to the Dodd-Frank Act placed strict customer protection requirements on banks offering money transfers, particularly remittances. The Consumer Financial Protection Bureau built on this in 2014, focusing on supervising large non-bank transfer providers. It makes sure that firms carrying out anything over one million transfers a year follow certain rules, including:

  • providing key information to customers, such as the fees they'll be charged and when the money will be delivered
  • the option to cancel their transfer within 30 minutes of the request
  • correcting problems reported within 180 days of the transfer.

In the UK, large firms (trading over €3m per month) must be authorised by the Financial Conduct Authority. That means they have to protect your money by keeping it in accounts separate to their own – if they go bust, you don't lose out. Smaller firms, however, only have to be registered – that can make them a riskier choice when sending money overseas.

When regulation goes wrong

We'd probably all rather pay a few more pounds, euros or dollars for these protections than see our money disappear. But in some countries, we're paying far more than that because the protections aren't good enough. According to the Overseas Development Institute (ODI), the average $200 sent to Africa comes with a 12% fee, which is double the global target. Reducing this fee could recover $1.8bn – enough to educate 14 million African children.

That hefty amount currently being lost is largely the product of poor regulation. In 2014, the ODI estimated that $586m of it could be attributed to operators like Western Union and MoneyGram. The companies sign exclusivity agreements with banks and agents, pushing up prices while stifling competition. In the ODI's view, better regulation is the key to correcting this. Promoting competition, transparency and innovation are all regulatory initiatives it's recommended to overcome the problem.

Weighing up the benefits: regulation vs cost

Africa's regulatory landscape encapsulates the issue: regulation itself isn't expensive – poor, regressive regulation is. The key is for legislators to find a balance that protects the customer while encouraging companies to think more innovatively and offer better deals as a consequence. We list a variety of these kinds of money transfer providers in our transparent comparison tool – start browsing today to find the most cost-efficient option for you.

Comparison tool

Andy Ferguson

Format is very organized and incredibly informative. All the information is right there and it is all pertinent to what I need to know. Great work.

Etta and Pierre Deschamps, Documentree Films

We regularly receive funds from overseas and used the Moneycloud to find an FX company who have helped us with a much better exchange rate than our high street bank. We're 3-4% better off as a result. Thank you the Moneycloud
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