The FCA expects firms to review their approach to interest retention under the Consumer Duty. This includes ensuring that the amount retained is reasonable and represents fair value for customers. Firms are also expected to cease the practice of double-dipping.
Sheldon Mills, the Executive Director of Consumers & Competition at the Financial Conduct Authority (FCA), has sent a letter to 42 investment platforms and Self-Invested Personal Pensions (SIPP) operators. This move comes in the wake of concerns about how these entities handle interest earned on customer cash balances.
The FCA’s letter highlights a critical issue: the substantial revenue generated from customers’ cash balances due to the increase in the Bank of England base rate. In June 2023 alone, the surveyed firms collectively amassed £74.3m in revenue through this practice.
Some platforms retain around 50% of interest, others even impose fees on customer cash they hold
Based on a survey conducted in July 2023, the FCA found notable practices among the investment platforms. A significant majority, about 71% of the sampled firms, retain a part of the interest earned on customers’ cash. On average, these firms retain around 50% of the interest. Additionally, 61% of these platforms impose a platform fee on the customer cash they hold.
The FCA expressed deep concern over the quality of disclosures provided to consumers regarding the retention of interest. The authority observed that information on this practice is often hard to find and difficult to understand, posing a challenge for consumer awareness and understanding.
A key part of the FCA’s directive revolves around the Consumer Duty. The letter emphasizes the need for firms to ensure that their retention of interest on cash balances aligns with this duty. This includes acting in good faith, avoiding foreseeable harm, and supporting customers in achieving their financial objectives.
High rates of interest retention don’t align with reasonable expectations, FCA says
The FCA’s letter points out the issues with high rates of interest retention, which may not align with customers’ reasonable expectations. Furthermore, the practice of ‘double dipping’, where firms both retain interest and charge account fees, is highlighted as a concern. This practice is likely to cause confusion among consumers and is seen as potentially harmful.
The FCA expects firms to review their approach to interest retention under the Consumer Duty. This includes ensuring that the amount retained is reasonable and represents fair value for customers. Firms are also expected to cease the practice of double-dipping.
Investment platforms and SIPP operators are required to submit confirmations and information to the FCA by 31 January 2024. They must also make necessary changes by 29 February 2024. The FCA emphasizes the need for timely changes in practice across the market in response to the concerns raised.
This directive is seen as a significant move towards enhancing consumer protection in the financial services sector. It underscores the FCA’s commitment to ensuring that financial practices are fair, transparent, and in line with consumer interests. The directive from the FCA is not only aimed at the 42 firms directly addressed but also sets a precedent for other consumer investment firms with comparable business models.
