ECU currently manages multi-currency loan facilities at 15 banks. However, if a bank has not previously provided multi-currency loan facilities, ECU will be pleased to provide guidance and detailed procedures.
To appoint ECU, a client's lending bank must provide a multi-currency loan facility with separate currency accounts for the following currencies: GBP, USD, EUR, JPY, CHF, AUD & CAD.
ECU switches its debt book from one currency to another by executing spot foreign exchange transactions with one or more of a number of major FX banks. The executing banks give up the trades to ECU's FX prime broker bank, The Royal Bank of Scotland plc, which then allocates the appropriate positions to each of the underlying lending banks.
This arrangement provides ECU with 24-hour market access and ensures both the speed and the quality of order execution. This can be particularly important in fast-moving markets.
Spot FX transactions go to delivery after two business days, so a client's currency risk profile changes at the time of execution and the interest rate profile two days later.
The FX prime broker bank delivers the old (bought) debt currency to te lending banks and the lending banks deliver the new (sold) debt currency to the FX prime broker bank.
The facility should be interest only and interest should not be added to the balance of a loan. Interest is charged at a bank's prevailing cost of funds for each currency, which is the applicable London Inter-Bank Offered Rate plus the bank's lending margin, which will be the same for all currencies.
If regular capital repayments are required by the lending bank, they should be paid into an interest-bearing GBP account and then transferred into the GBP loan account when appropriate.
The lending bank will require a 'Conversion Limit', being the percentage by which the loan can increase above its initial value, without further collateral or security, as a result of adverse currency movements. If breached, the lending bank has the right to convert the loan back into sterling to limit any further increase in the sterling value of the loan. ECU requires a minimum Conversion Limit of 15%. In this respect a client's facility must be for at least 15% more than the drawn amount of the loan.
Foreign exchange movements can be sudden and substantial. At no stage should you expose yourself to the high risks of foreign currency exposures if you are not able to afford the potential losses that could result from sizeable adverse currency movements and the higher interest rate servicing costs that would be required of you in the event of your having a larger debt.
Denominating debt in foreign currencies may not be suitable for you. Changes in the exchange rate may increase the sterling equivalent of your debt. Your lender will not tolerate too great an increase in the sterling equivalent of your debt as a result of currency losses and may opt to convert your debt back into sterling at a predetermined level. This may result in a permanent increase in the sterling equivalent of your debt which is not fully compensated for by any other benefits derived during the course of The ECU Group plc's discretionary currency debt management services. In this event, you could be left paying UK interest rates on a larger amount of sterling debt than that you originally borrowed. Your home may be repossessed if you do not keep up repayments on your mortgage.
Your lending bank sets a 'Conversion Limit' at which level they have the right to convert your managed multi-currency mortgage back into sterling to prevent further currency losses. It is important to understand that this is a right of your lending bank and not an obligation and that if they do not act promptly to convert your loan back into sterling when your Conversion Limit is reached, your loan could increase by more than that specified by your Conversion Limit.
ECU may from time to time transfer your loan into foreign currencies with higher interest rates than sterling with the objective of achieving a debt reduction in that currency.
Sterling interest rates are subject to change and the differential between sterling interest rates and the interest rates of other foreign currencies will fluctuate.
Suitability
The markets or financial instruments discussed herein may not be suitable for all investors and investors must make their own investment or participation decisions using their own independent advisors as they believe necessary and based upon their specific financial situation and investment objectives. Past performance is not a reliable indicator of future performance, and should not therefore form the basis of a decision whether or not to buy or sell any investments or financial instruments or to participate in any particular trading strategy mentioned herein.
The UK Regulatory System
The ECU Group plc ("ECU") is authorised and regulated by the Financial Services Authority.
In respect of managing physical liabilities in foreign currencies, ECU trades the foreign exchange markets on a spot basis and issues switch instructions to lending banks on a spot basis. Neither of these activities is currently regulated by the Financial Services & Markets Act 2000 as they meet the "Commercial Purposes" test. Therefore you will not benefit from the protection of the Financial Services and Markets Act 2000.
However, if ECU instructs the Lender, or any prime broker or counterparty with whom ECU effects foreign exchange transactions, to conduct a switch by way of effecting an “option” or “futures” transaction for the Client’s account, such transactions may be considered to be an “investment of a specified kind” under the Financial Services and Markets Act 2000. Consequently, both the execution process provided by the Lender, or any prime broker or counterparty with whom ECU effects foreign exchange transactions, and the currency management services provided by ECU, as envisaged under this Agreement, may be considered to be regulated activities. In such instances, the Client may be required to sign additional risk warnings and the rules for the protection of investors under the Financial Services and Markets Act 2000 will apply.
Other Important information
This website is maintained by ECU and is being issued inside and outside the United Kingdom by ECU for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any investments or financial instruments or to participate in any particular trading strategy in any jurisdiction in which such an offer or solicitation would violate applicable laws or regulations. ECU may not respond to requests for information or further assistance if, in the opinion of ECU, such action might be illegal or contravene any rule or regulation of any jurisdiction.
The views and foreign exchange and interest rate information in this website are based upon information from sources which we believe to be reliable but they are not guaranteed as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. Any contractual obligation between ECU and its clients will only be on the basis of undertakings contained in an ECU client agreement executed by both ECU and the client, as may be amended from time to time by ECU, and which may vary from any information contained herein. Products and services may be subject to material changes at any time from the information herein. ECU aims to ensure that all information herein is accurate at time of printing, but does not accept any responsibility for its accuracy.
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