The City regulator has warned it will consider cracking down on banks that appear to be profiteering from, or failing to quickly pass on, savings rates once new regulations come into force at the end of the month.
The Financial Conduct Authority (FCA) chief executive, Nikhil Rathi, told MPs on the Treasury committee that it was likely to take a range of “factors and metrics” into account when determining whether banks were offering “fair value” for savers under the incoming rules on consumer rights, called the consumer duty.
Lenders have recently been pushed to justify their decision to keep easy-access savings rates low, while the cost of loans and mortgages has soared. The big four banks – Lloyds, HSBC, NatWest and Barclays – currently offer easy-access savings rates of between 0.9% and 1.75%. That is despite the Bank of England base rate rising to 5%.
“We will monitor firms’ actions to comply with the duty and take appropriate steps, including enforcement action if appropriate, if we find they are consistently not providing good outcomes for their customers,” Rathi said in a letter published by the committee on Tuesday.
Rathi, who will face questions from the committee on Wednesday afternoon, said that while the regulator understood that banks had different business models, and therefore would offer a “diversity” of products, there were ways to assess whether customers were being treated fairly across the savings market.
That includes assessing whether lower rates on instant access savings accounts were proportionate, given that customers could withdraw their funds at any time, compared with fixed savings accounts that lock in savings for a period of time and often charge a penalty fee for early withdrawals.
It would also look at the level of services offered to customers, including high street branches, call centre wait times, the quality of online banking services, as well as lenders’ complaint levels.
Meanwhile, the FCA will consider the “cost to banks of providing savings products and the margins banks earn on the provision of those products”, Rathi said, as well as the “speed and extent to which banks respond to changes in the cost of providing savings products to consumers”.
It comes as the big four high street banks used their own letters to the committee to defend their savings rates on instant access accounts, but admitted that some customers were shifting billions of pounds’ worth of savings to rival lenders offering higher rates.
The Barclays UK chief executive, Matt Hammerstein, said the lender had done extensive research on how to encourage savings across its customer base, had raised rates, and recorded a jump in customers shifting their cash as a result.
However, he said some customers shifted cash to rival lenders as rate offers change. Barclays alone attracted £91bn in savings over the past year, but lost £105bn in customer deposits over the same period.
“We do not see customer ‘inertia’ among our savings customers,” he said, adding that data showed a “significant number of Barclays savings customers are shopping around and hold their balances elsewhere”.
The HSBC UK boss, Ian Stuart, said the bank was “working hard” to encourage customers to boost their returns, including its ability to “nudge customers more frequently” towards different products and services. The Lloyds Banking Group chief executive, Charlie Nunn, said the lender was experimenting with sending text messages to customers to improve engagement.
The FCA and Information Commissioner’s Office also confirmed in a letter to the UK Finance lobby group and Building Societies Association on Tuesday that data protection laws should not stop lenders from targeting customers with better deals. “Some firms have queried whether data protection regulations prevent them from telling savings customers about better deals. This is not the case.”