FCA sets out 14-point action plan on cash savings

The Financial Conduct Authority (FCA) launched a new set of rules called the Consumer Duty on Monday 31 July 2023, and set out a 14-point plan on cash savings to ensure banks and building societies are passing on interest rate rises to savers¹. The savings measures sit alongside the wider Duty, which the FCA says raises the standards of how financial firms treat customers and ensures they receive "fair value"¹.

The FCA found that nine of the biggest savings providers, on average, passed on only 28% of the base rate rise to their easy access deposits between January 2022 and May 2023¹. The base rate rose 13 times from December 2021, and the report says banks were slower to pass increases to savers, particularly those with money in easy access accounts, than they were to raise mortgage rates¹. Smaller firms have typically offered higher rates on average than larger rivals¹.

Under the plan, firms offering the lowest savings rates must justify how those rates offer "fair value" as defined by the Consumer Duty by the end of July 2023, and the FCA has said it will take "robust action" if they cannot¹. The regulator will also publish an analysis of easy access savings rates every six months, challenge providers on different rates for new and existing customers, and monitor how cash savings contribute to a provider's profits¹.

The Consumer Duty requires firms to act in good faith toward customers, avoid foreseeable harm and enable customers to pursue their financial objectives¹. It also covers appropriate products and services, communications customers can understand and accessible customer support¹. UK Finance, which represents banks, described the changes as "one of the biggest shake-ups to retail financial services regulation"¹.

Why it matters for households

The rules apply to new and existing products and services open to sale or renewal from 31 July 2023¹. For closed products and services, which are no longer available, such as savings accounts no longer open to new customers, providers get an extra year, until 31 July 2024¹.

For savers, the practical effect is that the rates paid on easy access accounts are now subject to the FCA's scrutiny, with providers on the lowest rates required to justify them¹. The six-monthly publication of easy access savings rate analysis means the rates paid by different banks and building societies will be set out publicly on a regular basis¹.

The Duty also covers other areas of household money, including pensions, investments, credit cards, loans and mortgages¹. Examples given of conduct that would breach it include exploiting customers' behavioural tendencies or lack of knowledge, such as playing down less immediate costs like renewal fees, and foreseeable harm such as customers falling victim to scams, paying more in investment fees than they are likely to see in returns, or vulnerable customers being sold products they cannot use¹.

The way complaints are made does not change¹. A customer who thinks a firm is not following the Consumer Duty must still give the business a chance to respond, and can ask the Financial Ombudsman Service to investigate if it takes longer than eight weeks or rejects the complaint¹. The Ombudsman said in its budget and plans for 2023-24 that it expects a short-term increase in complaints as a result of the Consumer Duty, followed by a gradual fall as the Duty leads to better treatment of customers¹.

What happens next

The FCA will publish its analysis of easy access savings rates every six months¹. The rules apply to closed products and services from 31 July 2024¹. The report notes that some 92% of advisers think the Consumer Duty will increase the cost of running their businesses, according to research by Panacea Advisers carried out between February and April 2023, and that the Duty could push up the prices of products such as advice fees as companies cover compliance costs¹.