On Thursday, Britain’s financial watchdog said it would use new, stricter consumer protection powers from July 31 to ensure banks pass on interest rate hikes to savers, and additional action was possible.
The Financial Conduct Authority (FCA) will begin phasing in its “consumer duty” on July 31, giving it more ability to guarantee that the corporations it regulates operate in customers’ best interests.
Since December 2021, the Bank of England has raised interest rates from almost 0% to 4.25%. Markets expect another increase next month.
FCA Chief Executive Nikhil Rathi said the watchdog closely watched how firms carry through rate adjustments. However, the consumer obligation would change how the FCA can ensure firms offer the greatest client outcomes.
“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 wrote to parliament’s Treasury Select Committee.
In January 2020, the FCA consulted on creating a single ‘easy access’ rate on cash savings or SEAR to eliminate the “loyalty penalty” in cash savings markets, where longstanding clients obtain poorer prices than new customers.
COVID-19 and ultra-low rates halted this work.
“Given rising interest rates and firms’ base rate pass-through performance we have considered whether we should restart this work,” Rathi added.
“However, we believe the Consumer Duty gives us greater flexibility to react to market developments, rather than needing to introduce detailed and prescriptive rules.”
Rathi said the FCA might reconsider SEAR or other harsher measures if “loyalty penalties” continue.
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