The first action under the UK Financial Conduct Authority's new Consumer Duty rules arrives with the publication of a 14-point action plan to boost cash savings interest rates.
The UK's banks have been under the cosh for paying out derisory interest on customer deposits during a time of inflationary stress and rising base rates.
The FCA's plan follows a review of the cash savings market and a roundtable held with banks in early July. The watchdog found that while interest rates on savings accounts have been rising, this has been happening more slowly for easy access accounts.
Nine of the biggest savings providers, on average, only passed through 28% of the base rate rise to their easy access deposits between January 2022 to May 2023. Notice and fixed term deposits have seen greater pass through of rate rises, with these 9 firms passing through 51% over the same period. There has also been significant variance between firms, with smaller firms offering higher interest rates on average than their larger competitors.
Under the new rules, firms offering the lowest savings rates will be required to justify by the end of August how those rates offer fair value, according to the Consumer Duty which enters into force today. The FCA has promised "robust action" against firms that cannot deomonstrate fair value.
Firms will also need to step up their communications with their customers about their options and measure the effectiveness of their communications campaigns. Together with the Information Commissioner’s Office, the FCA recently clarified how savings providers could inform their customers about the best available rates, even where they had opted out of marketing.
Sheldon Mills, executive director of consumers and competition at the FCA, says: 'We want a competitive cash savings market that delivers better deals for savers, where interest rates are reviewed quickly following base rate changes and firms prompt savers to switch to accounts paying higher rates."
The largest savings providers have so far voluntarily committed to increase the efficiency of cash ISA to cash ISA switching, explore the potential for Open Banking to make savings work harder for consumers and work with the FCA to develop a savings dashboard which gauges consumer activity in the savings market.
Says Mills: "We welcome the progress that has been made so far but this needs to speed up. We will be using the Consumer Duty to ensure this is the case - with firms required to prove to us that they are offering their customers fair value."