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

The head of the Financial Conduct Authority has said the regulator “will not stand in the way” of banks choosing to charge customers for holding accounts.

Many City businesses are concerned about skyrocketing costs in the wake of regulatory changes, which are also forcing some to change their business models.

Nikhil Rathi, chief executive of the FCA, said on Thursday the regulator understood these complaints but maintained its focus on retail protection through its consumer rights rules.

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

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

Today, most savers do not have to pay any type of monthly or annual fee to open or maintain accounts such as checking or savings accounts.

However, some providers already charge fees for maintaining bank accounts. To give an example, savers using the Santander Edge Up current account are charged a monthly fee of £5 to maintain it.

Rathi said many other countries already impose fees on checking 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 about the UK’s free banking model.

Youel added: “Bank” margins are barely shrinking, with lenders enjoying record profits fueled by higher interest rates that have held on to depositors.

“It’s bad enough that banks are cutting access to in-person services by closing branches; also cutting access to free checking accounts 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 implementation of the Consumer Tax could also reduce compensation taxes imposed on financial firms.

He said the regulator would be “pragmatic” in enforcing the rules, addressing breaches that pose the greatest risk of harm, but looking “favorably at companies that have made reasonable efforts to address concerns”.

In this regard, the FCA will focus on cash savings markets, both at larger banks and on platforms, insurance products such as premium financing and gap asset protection insurance, known as Gap insurance.

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

Rathi added: “We are not out to trip up companies by pursuing technical violations.”

Rathi also said the FCA aimed to “achieve earlier clarity than previous redress events” on the scale of consumer harm from potential overcharging on car finance.

Some of the UK’s largest banks have already set aside hundreds of millions of pounds to cover potential compensation related to the FCA investigation. Some analysts estimate that banks’ potential costs could rise by up to £2 billion, while others suggest this is an underestimate.

Last month, Lloyds Banking Group set aside £450m to cover the potential costs of a regulatory investigation into the car finance commission’s dealings.

“The more quickly and thoroughly companies collaborate on data requests, the sooner we can complete our work,” Rathi said.

On artificial intelligence, Rathi said it was not the regulator’s instinct to seek immediate regulation of developments in 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 falls on businesses to satisfy themselves about fair value. This is not a Trojan horse for price regulation.’

He added: “We are not a price regulator and we will not hinder well-run companies from making profits in the face of effective competition.”

Rathi said the FCA would move to “outcomes-focused regulation”. He said it was a “steady move away from the prescriptive standards held dear by compliance consultants.”