FCA ‘won’t stand in the way’ of an end to free banking, says boss

• Most savers don’t currently pay to maintain bank accounts in the UK
• However, some providers in the UK already impose fees on certain accounts  

The boss of the Financial Conduct Authority has said the regulator would ‘not stand in the way’ of banks opting to charge customers to hold accounts. 

Many City firms are concerned about spiraling costs in the wake of regulatory changes, which are also forcing some to shift their business models. 

Nikhil Rathi, the FCA’s chief executive, said on Thursday the regulator understood these complaints but stood by its focus on retail protection via its Consumer Duty rules. 

He told the Morgan Stanley European Financials Conference on Thursday: ‘We have always been clear that if business models need to change in response to competition and a changing market, we would not stand in the way.

‘The “free-if-in-credit” banking model in the UK is a market and commercial decision not a regulatory requirement, other than for basic bank accounts.’ 

At present, most savers do not have to pay any sort of monthly or annual fee to open or maintain accounts like current or savings accounts.

However, some providers already charge fees to maintain bank accounts. Taking one example, savers using the Santander Edge Up current account are charged a £5 monthly fee to maintain it.

Rathi said many other countries already imposed fees on current accounts. 

While some providers already impose fees to maintain certain accounts, responses to Rathi’s speech were mixed. 

Simon Youel, head of policy and advocacy at Positive Money, said he was ‘extremely concerned’ by Rathi’s comments on the UK’s free banking model. 

Youel added: ‘Banks’ margins are hardly being squeezed, with lenders enjoying record profits driven by higher interest rates which they’ve withheld from depositors.

‘It is bad enough that banks are cutting access to in-person services with branch closures – cutting access to free current accounts as well would be another big slap in the face to the public.’ 

Rathi, who has led the FCA since October 2020 after succeeding now-Bank of England Governor Andrew Bailey, said the application of the Consumer Duty could also cut compensation levies imposed on financial firms.

He said the regulator would be ‘pragmatic’ when enforcing rules, tackling breaches that pose the greatest risk of harm but looking ‘favourably on firms that have made reasonable efforts to address concerns’.

The FCA will, in this regard, focus on cash savings markets, both in the largest banks and on platforms, insurance products such as premium finance, and gap asset protection insurance, known as Gap insurance. 

Gap insurance covers the difference, or shortfall, between the current market value of your car and the price you originally paid for it.

Rathi added: ‘We’re not setting out to trip firms up by going after technical breaches.’ 

Rathi also said the FCA was aiming to ‘achieve earlier clarity than previous redress events’ on the scale of consumer harm from possible overcharging in motor finance.

Some of the UK’s biggest banks have already set aside hundreds of millions of pounds to cover possible redress linked to the FCA’s probe. Some analysts estimate the banks’ potential costs could rise as high as £2billion, while others suggest this is an underestimate. 

Last month, Lloyds Banking Group set aside £450million to cover the potential costs of a regulatory probe into motor finance commission arrangements. 

‘The more quickly and comprehensively firms cooperate with requests for data, the sooner we can conclude our work,’ Rathi said.

On artificial intelligence, Rathi said it was not the regulator’s instinct to seek immediate regulation of advances this field within the financial services sector. 

Summing up the FCA’s approach to the financial services sector, Rathi said: ‘A consistent theme has been that the onus is on firms to satisfy themselves about fair value. That is not a Trojan horse for price regulation.’

He added: ‘We are not a price regulator and we will not stand in the way of well-run businesses making profits in the face of effective competition.’ 

Rathi said the FCA would shift to ‘outcomes-focused regulation.’ He said this was a ‘steady move away from prescriptive rules, beloved of compliance consultants.’