By Huw Jones
LONDON (Reuters) – Britain’s financial watchdog said on Thursday it would use new, tougher consumer protection powers from July 31 to ensure banks pass on increases in interest rates to savers, and further action was not ruled out.
The Financial Conduct Authority (FCA) will begin phasing in its “consumer duty” from July 31, giving it stronger powers to ensure that the companies it regulates act in the best interest of their customers.
Since December 2021, the Bank of England has increased interest rates from nearly 0% to 4.25%, with markets expecting another increase next month.
FCA Chief Executive Nikhil Rathi said the watchdog was closely monitoring how firms pass through rate changes, and the consumer duty would represent a step change in how the FCA can ensure firms are delivering the best outcomes to customers.
“We have made clear that firms should be able to justify and explain the rationale for the speed and degree to which they make changes to their various savings rates,” Rathi said in a letter to parliament’s Treasury Select Committee.
The FCA consulted in January 2020 on whether to introduce a single ‘easy access’ rate on cash savings or SEAR to stop any “loyalty penalty” in cash savings markets – or longstanding customers get worse deals than new customers.
This work was put on ice due to COVID and ultra low rates.
“Given rising interest rates and firms’ performance on base rate pass-through we have considered whether we should restart this work,” Rathi said.
“However, we believe the Consumer Duty gives us greater flexibility to react to market developments, rather than needing to introduce detailed and prescriptive rules.”
But the FCA remains open to revisiting SEAR type measures, or other more onerous interventions, if it still sees “loyalty penalties” being applied, Rathi said.
(Reporting by Huw Jones Editing by Jason Neely and Mark Potter)
