UK cost-of-living crisis: FCA wants to see accelerated progress on fair and competitive savings rates

Government action plan with regulators: FCA focus on savings market

At a roundtable on 28 June 2023 between the Chancellor of the Exchequer, Jeremy Hunt, and CEOs from the Competition and Markets Authority (CMA), the FCA, Ofcom, Ofgem and Ofwat, a new action plan was agreed to ensure consumers (particularly vulnerable consumers) are being treated fairly and help those struggling to make payments. Key measures include the FCA agreeing to deliver better deals for savers by driving competition, including reporting by the end of July on how the savings market is supporting savers to benefit from higher interest rates. The FCA also published a press release summarising its commitments under the action plan and recapping on its work to help consumers to date.

For more on the June 2023 action plan and related cost-of-living support work from the government and regulators, take a look at our article 'UK cost-of-living crisis: new Government/FCA measures to help consumers with savings and mortgages'.

FCA’s expectation for fair and competitive savings rates

Following a meeting on 6 July with the UK’s largest banks and building society as part of its action plan work, the FCA issued a statement setting out its expectation for fair and competitive savings rates.

The FCA made the point that the meeting built on work it has already been doing over several months to monitor the savings markets and the decisions made, and challenge firms where their decision making has been slow.

While preparatory work for the new Consumer Duty has seen some positive action by banks and building societies to improve their rates and to ensure their customers are benefiting from better value products, the FCA now wants to see that progress accelerate.

At the meeting, the FCA made it clear to the attendees that the Consumer Duty will set a new standard for firms from the end of July, including on savings rates. According to the statement, the attendees recognised that they needed to do more to help their consumers access the best rates. In its turn, the FCA acknowledged a need for further guidance and stated its intention to continue its focus on this.

Major banks and FCA respond to Treasury Committee letters on savings rates and Consumer Duty

As mentioned in our previous article, as part of its on-going inquiry into retail banks in early July the House of Commons Treasury Committee wrote to the biggest high street lenders and the FCA about savings rates. Among other things, the Committee asked the banks whether they are confident that their current savings products are in line with the new Consumer Duty, which comes into force on 31 July. Questions to the FCA included how ‘fair value’ for customers will be assessed, and what enforcement action can be taken if firms do not comply with the Consumer Duty. The FCA and the banks have now responded to the Committee.

Points of interest from the FCA’s letter include:

• Further action which will be outlined in its July report could encompass market wide actions to remove any regulatory or other barriers to a healthy, competitive savings market (eg through greater leverage of Open Banking opportunities).
• On the Consumer Duty, the FCA explains that the Duty will assist it to ensure that interest rates offer fair value, and provides examples of the metrics it will use to assess whether a product is offering fair value to its target market. The FCA will also expect firms to have a strategy to ensure their customers are adequately informed of available rates and how they may benefit from switching to an alternative.
• Once the Duty is in force, the FCA will continue to use data and insights to identify ‘outliers and poor practice’, and will intervene where firms fail to deliver good outcomes. In a context such as this, the FCA states that it would typically give firms a period of time to remedy any problems identified before commencing formal enforcement action. Post-implementation, it will carry out work to review firms’ support for customers in financial difficulty and firms’ approach to fair value.
• In response to concerns raised by some firms, the FCA is working with the Information Commissioner's Office (ICO) to clear up any outstanding issues relating to data protection law requirements as a barrier to contacting customers who have opted out of receiving marketing material. It has subsequently sent a joint letter with the ICO to UK Finance and the Building Societies Association to clarify that savings providers can inform their customers of the best rates available to them, even where they have objected to direct marketing. A related FCA press release states that it now expects firms to point customers to the best possible savings deals.

Next steps

The FCA’s report to the government on how the savings market is supporting savers to benefit from higher interest rates is now due.. The FCA will set out whether further steps are needed to improve the market. The FCA’s Consumer Duty will apply to new and existing products or services open to sale or renewal from 31 July 2023. Our Consumer Duty hub provides a number of useful resources to help firms as they enter the final countdown to the implementation deadline.

If you would like to discuss any aspect of the Consumer Duty or the FCA’s saving rates work, please get in touch with one of the listed lawyers or your usual Hogan Lovells contact.

Authored by Julie Patient and Virginia Montgomery.