The UK Financial Conduct Authority (FCA) has introduced its new Consumer Duty rules, first evident in a 14-point action plan aimed at enhancing cash savings interest rates.
UK banks have faced criticism for providing minimal interest on customer deposits during a period marked by inflation and rising base rates. The FCA’s initiative comes after a review of the cash savings market and discussions with banks in early July. The findings revealed that although interest rates on savings accounts are increasing, the rise has been slower for easy access accounts.
Analysis from nine major savings providers indicated that these institutions passed through only 28% of the base rate increase to their easy access deposits from January 2022 to May 2023. However, notice and fixed-term deposits saw a greater transmission of rate hikes, with these firms sharing 51% of the base rate rise during the same period. Additionally, smaller firms have, on average, provided higher interest rates compared to their larger counterparts.
Under the new rules, institutions offering the least competitive savings rates must justify their rates by the end of August, complying with the Consumer Duty that takes effect immediately. The FCA has pledged to take “robust action” against any firms failing to demonstrate fair value.
Furthermore, firms are obligated to enhance their engagement with customers, informing them about their options and evaluating the effectiveness of their communication strategies. In collaboration with the Information Commissioner’s Office, the FCA has also clarified how savings providers can notify customers about the best available rates, even if they have opted out of marketing.
Sheldon Mills, FCA’s Executive Director of Consumers and Competition, stated the authority aims for a competitive cash savings market that benefits savers. He emphasized the importance of quick interest rate reviews following base rate changes and encouraging firms to prompt customers to switch to higher-rate accounts.
The largest savings providers have voluntarily agreed to improve the process of switching cash ISAs, investigate the advantages of Open Banking to optimize savings for consumers, and cooperate with the FCA to create a savings dashboard to monitor consumer activity in the savings market.
Mills remarked, “While we appreciate the progress made thus far, it is crucial that this momentum continues. We will leverage the Consumer Duty to ensure that firms demonstrate they are providing fair value to their customers.”