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90% of major banks use legal loopholes to hide cross-border fees

90% of major banks use legal loopholes to hide cross-border fees
Ana Zirojevic

After the widely publicized collapse of several banking giants within days of each other, as well as the international investigation into possible financial fraud that has recently culminated with multiple raids in Paris, research has shown that many large banks continue to hide their cross-border fees.

Indeed, despite the cross-border payment costs transparency required by the United Kingdom and European Union (EU) law, more than 90% of banks have been found to use legal loopholes to keep these fees largely hidden, according to the research published by the UK-based international financial technology company Wise, as shared by Finextra on March 30.

What the law requires

As the company stated, the piece of legislation that demands this transparency is the “Cross-Border Payments Regulation 2,” which came into effect in 2020 and reads that “all currency conversion charges are shown in a clear, neutral and comprehensible manner” before the client makes a transfer to another currency in Europe.

Specifically, the cost of a transaction includes two components: an upfront fee and a currency fee, included in an inflated exchange rate, and the aim of the above-mentioned law was to stop the latter practice and facilitate more visibility into the cross-border movement of money between European countries.

Bypassing the rules

However, banks have been successful in finding loopholes, as Wise stated:

“But three years in, 92% of the banks analyzed by Wise exploit loopholes in the law and remain opaque about their currency conversion fees. This ambiguity represents a billion-pound bill for both consumers and businesses in the UK, who lost £5.6bn to hidden fees in 2022 alone.”

Moreover, out of the 25 banks analyzed, 20% did not offer any information about the exchange rate used at the moment of making the transfer, while 72% showed an exchange rate not corresponding with the mid-market rate but with the banks’ own inflated exchange rate – which was not communicated as a cost to the user.

That said, two banks were completely transparent about all of their fees: Starling Bank and ING branches, while 12% demonstrated differing levels of transparency but fell short of complete visibility. As the study explains, some banks did calculate the actual cost of the transfer but, interestingly, “hid it behind a tooltip.”

Banking sector’s troubles

Meanwhile, the risks in the financial system remain “very high,” as highlighted by José Manuel Campa, the current chairperson of the European Banking Authority (EBA), who believes that “failures and lack of confidence” could still occur despite banks having improved their liquidity positions, as well as supervision and regulation.

More recently, French and German prosecutors and investigators have carried out searches in and around Paris, France, targeting several major banks – Société Générale, BNP Paribas, Exane, Natixis, and HSBC, as part of an investigation into a possible fiscal fraud and money laundering case.

On top of that, two whistleblowers have said that the recently rescued Swiss bank Credit Suisse continued to provide a safe haven for wealthy American customers, allowing them to conceal assets from the United States Internal Revenue Service (IRS), as Finbold reported.

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