Savings providers must keep customers informed about available rates – watchdog
FCA boss Nikhil Rathi said firms will need a strategy to ensure customers are adequately informed of available rates across their product set.
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.Savings providers will have to make sure customers are kept adequately informed of available interest rates and consider additional switching support for groups who could be better off, the head of the City regulator has said.
Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), wrote to the Treasury Committee ahead of a new consumer duty coming into force at the end of July.
Some providers are making a “significant cultural shift” as they prepare to meet the new duty, he said.
In the letter, Mr Rathi said: “We welcome that many firms have acted in advance of the consumer duty to simplify their product ranges and equalise rates between on and off sale savings accounts.
“We will monitor firms’ actions to comply with the duty and take appropriate steps, including enforcement action if appropriate, if we find they are consistently not providing good outcomes for their customers.”
We will expect firms to have a strategy to ensure their customers are adequately informed of available rates across their product set and how they may benefit from switching to an alternative
The new duty will require financial firms to put customers at the heart of what they do, setting higher and clearer standards.
Mr Rathi said the higher standards mean “we will expect firms to have a strategy to ensure their customers are adequately informed of available rates across their product set and how they may benefit from switching to an alternative”.
He said firms will need to go further than just notifying a customer at product maturity in order to be compliant, adding: “This includes identifying groups of customers who may be better served by a higher rate product and considering what additional steps they can take to support these customers in switching where appropriate.”
The Treasury Committee has raised concerns about borrowing costs rising at a faster pace than savings rates as interest rates rise, and it has been pressing providers on the issue.
Figures released by Moneyfactscompare.co.uk on Tuesday showed the average two-year fixed-rate homeowner mortgage on the market has a rate of 6.78%. The average easy access savings rate is 2.62%.
Mr Rathi said: “The consumer duty is requiring a significant cultural shift in how some firms approach the value they offer in their savings products.
“If firms find that their products do not meet the needs of customers or deliver fair value, we expect them to take remedial action.
“We are clear, however, that our rules do not operate as a price cap or floor, nor prevent innovation in financial services.”
Mr Rathi said steps by some providers to offer borrowers and savers fair and competitive rates are welcomed by the FCA.
He added: “For others, the consumer duty will raise the question as to whether savings accounts for loyal customers which pay close to zero offer fair value.
“We have been closely monitoring firms’ interest rate decisions and have regularly raised the issue in our supervisory discussions.”
Mr Rathi said that at a recent meeting with major savings providers: “We made clear that we want to see firms making faster progress and to ensure that their customers are benefiting from better value savings products.”
The duty comes into force on July 31 2023 for new and existing products or services that are open to sale or renewal. It applies from July 31 2024 for closed products or services.
If the high street banks continue to pay poor savings rates on their instant access accounts, they should make sure their customers know that better rates are available
Commenting on the correspondence, Treasury Committee chairwoman Harriett Baldwin said: “If the high street banks continue to pay poor savings rates on their instant access accounts, they should make sure their customers know that better rates are available.”
The committee also published letters from bank bosses, responding to its questions.
Matt Hammerstein, chief executive of Barclays UK, said: “We recognise that maintaining strong alignment with the duty will require monitoring of customer outcomes on an active basis to ensure we continue to deliver fair value in the context of the evolving economic and market environment.”
He said Barclays has refreshed its policies, standards and processes.
HSBC UK chief executive Ian Stuart said in his letter: “Our retail savings strategy remains to help customers budget and save better for the long term.
“We have therefore designed a broad suite of savings products to support different goals, all of which treat new and existing customers in the same way with respect to interest rates.”
Charlie Nunn, group chief executive at Lloyds, wrote: “We take our obligations under the consumer duty seriously and have made a number of significant enhancements to support our customers… We will continuously improve our products, services and journeys beyond July 2023.”
NatWest group chief executive Dame Alison Rose said: “Improving the overall financial resilience of our customers is a priority for NatWest and we have been working for some time on products that promote good savings habits… Our pricing principles mean that we do not discriminate between new and existing customers.”