[DRAFT] Not approved for publication. Every figure and regulatory statement on this page needs compliance sign-off.

What a margin is

When you pay a partner overseas, your bank turns your pounds into another currency. The rate you get is rarely the rate the market is trading at. The gap between the two is the margin. It is the bank's charge for the conversion, and it sits inside the rate rather than on the invoice.

That is what makes it hard to see. A fee appears on a statement and someone questions it. A margin appears nowhere, so it can go unexamined for years.

Margins are quoted as a percentage of the amount converted. Illustrative: a margin of 2% on £250,000 of payments is £5,000. On the same volume each year, it is £25,000 over five years that never reached a programme.

How to find the margin you paid

You need two numbers for every payment: the mid-market rate at the moment the trade was done, and the rate you were actually given.

The mid-market rate is the midpoint between the buying and selling prices in the wholesale market. It is the neutral reference for what a conversion should have cost. Independent providers publish it, and some of them are accredited benchmark administrators. [CONFIRM: whether New Change FX may be named here]

The sum is short:

margin % = (mid-market rate − your rate) ÷ mid-market rate × 100

Do it for one month of payments and you have a number. Do it for a year and you have something to take to a finance committee.

Three questions to ask your bank

What margin do you apply, currency by currency?

Ask for it in writing, for each currency you send, and ask whether it changes with the size of the payment. Many charities find the margin on a thinly traded currency is several times the margin on euros or dollars.

Will you confirm the mid-market rate on each trade?

Some providers show the reference rate next to the rate you were given. Most do not unless you ask. Without it you cannot check the margin after the event, which is when checking is easiest and least stressful.

What do you charge beyond the rate?

Payment fees, receiving charges, correspondent bank deductions and cancellation costs all sit outside the margin. Ask which of them apply to the countries you pay, and who bears them: your charity, or the partner at the other end.

What an FX policy is

An FX policy is a short document, approved by trustees, that sets out how your charity handles currency. It does not need to be long. One page, reviewed once a year, is enough for most organisations.

A workable policy covers:

• Who may agree a rate, and up to what value.

• Which currencies you send, and to whom.

• The evidence kept for every payment.

• When, if ever, you fix a rate ahead of time.

• How exchange gains and losses are treated in the accounts.

• How often trustees review the policy.

Why 71% of charities surveyed had none

In the INGO FX Insights Report 2021, 71% of respondents said they had no official foreign exchange policy. The reasons given were a lack of internal resources, insufficient knowledge and a lack of prioritisation. Source: INGO FX Insights Report 2021, Charitytransfers.org with Crowe. [CONFIRM: figure]

None of those reasons is unusual in a small finance team. A policy is rarely the most pressing item on the list, and it stays that way until a bad month makes it pressing. Most treasurers we meet are surprised by the annual total, not by the idea behind it.

What to do this quarter

• Export twelve months of international payments from your ledger.

• Record the rate you received on each one.

• Find the mid-market rate for each trade date.

• Work out the margin, as a percentage and in pounds.

• Put the three questions to your bank in writing.

• Take the annual total to your next finance committee.

• Agree who will draft the one-page policy.

If you would rather not do the first four steps by hand, we run this review for charities and give you the workings. [CONFIRM: review offer and whether it may be described as free]