A reputational battle has been playing out with banks and building societies under fire in the media and from policy makers, about whether they have been increasing mortgage rates faster than savings rates as the Bank of England’s base rate has risen. The FCA’s intervention on this pricing issue shows how the Consumer Duty extends its reach into new areas and poses a new challenge for communications teams.
At the end of this month the FCA’s Consumer Duty regulation comes into force for products and services that are currently on sale (the implementation date for closed products and services is 12 months later). The Consumer Duty represents a radical re-think of how financial services firms are expected to behave by the regulator, by setting out a new Consumer Principle that requires firms to act in such a way that delivers good outcomes for retail customers across four areas:
- Products and Services
- Price and Value
- Consumer Understanding
- Consumer Support
Whilst it was always apparent that the Consumer Duty would mark a significant new approach to regulation, the scale of that change is only now becoming clear.
For example, earlier in July, the FCA met with the UK’s largest banks and building society, to ‘set out [its] expectation for fair and competitive savings rates’.
The FCA’s statement after the meeting illustrated how it feels it can use the Consumer Duty to influence how firms price their savings products and communicate to customers about them. The FCA said:
Through preparation for our new Consumer Duty, which requires the firms we regulate to put consumer interests at their heart, we have started to see some positive action by banks and building societies to improve their rates, and to ensure their customers are benefiting from better value products.
And it added:
We want to see a competitive market with fair value retail banking products – and with banks helping consumers to access them.
Some banks have pushed back – telling the Treasury Select Committee that they have increased savings rates and continue to do so in what is a highly competitive savings market. At the same time, banks are claiming that they can’t tell customers who may have opted out of marketing that they could switch to a savings account with a better interest rate because of the GDPR rules. The FCA has teamed up with the Information Commissioners Office to debunk this – by reminding them that letting customers know that higher savings rates are available is a factual, regulatory communication – not marketing.
Over the next few months we expect to see this debate play out:
- What is fair value for a savings rate? If some banks are offering, for example, an instant access account paying 4%, is one paying 2% still fair value?
- Is it fair for banks to be launching new savings accounts paying higher rates and expecting people in older accounts to switch to them? This would appear to disadvantage some customers with vulnerabilities – for example because they aren’t digitally savvy. Why can’t they simply increase the interest rate on the existing savings account?
- What will happen to ‘discontinued accounts’? Most banks and building societies have a huge back book of savings accounts that are no longer on sales, which often languish on low interest rates. Whilst they may have until July 2024 to resolve the issue, it is hard to see how allowing these to remain is consistent with delivering good consumer outcomes.
Of course, financial institutions operate in a competitive market and there are many ways for consumers to compare prices and find the best deal for them – from price comparison websites to best buy tables. What’s new here is how the Consumer Duty appears to extend the FCA’s remit to influencing, and commenting on, firms’ pricing decisions. For financial services communications teams it represents another reputational risk to manage.
