A few days ago the Bank of New York Mellon was named in a foreign exchange fraud case by the New York State Attorney General. BNY Mellon allegedly has promised insitutional clients to give them the best exchange rate available. But in reality the bank gave clients the worst or nearly the worst rate defrauding clients of USD 2 bn.
In this case institutional clients were the victims. But as we know from many complaints of private clients, it happens to private wealth clients as well. In these cases most often the bank does not even promise a good or the best foreign exchange rate. The bank executes transactions just at bad or very bad rates for their clients. Most clients don’t even notice as they have no clue what the market rate for a specific currency pair is at the point in time when the transaction is executed. It is common for private banks to deviate 100 to 200 basis points from the market rate (1% to 2%). This generates a very nice income stream for the bank - the client does not even register the scam. We can only recommend to check very closely any foreign exchange transaction, compare with competiors and re-negotiate the rate.
1. Before you make a foreign currency transaction, check the real time market rate on the Internet. Yahoo Finance or other portals give you an easy set of tools to get the most up-to-date market rate on almost any important currency pair.
2. Beware of automatic currency exchange when you do an online or telephone trade with your bank or broker. They might just convert money from your dealing account to buy foreign assets at the so called “system rate”, which is usually the worst on offer from your bank.
3. Negotiate your exchange rate: make sure that you get preferential treatment, an improvement on the system rate, when you want to change small amounts quickly online. Be even more insistent on preferential rates for any amount higher than USD 10,000. You should be able to negotiate a rate between 10 and 40 basis points better than the market rate.
4. If you can’t get what you want from your main wealth manager, don’t hesitate to switch to special platforms to get a better exchange rate. In most countries you will find online brokers who offer extremely competitive deals on foreign currency - especially if you make frequent trades for substantial amounts.