LONDON, July 31 (Reuters) – Britain’s banks and building societies have until the end of August to justify to regulators why some of their savings rates are low or face sanctions, the markets watchdog said on Monday, as Bank of England rates look set to rise to their highest since 2008.
While the sector has been passing on higher interest rates rapidly to mortgage customers, lawmakers have criticised lenders for not upping rates on savings worth around 1.5 trillion pounds ($1.9 trillion) at a similar speed, amid a cost-of-living crisis.
The Financial Conduct Authority (FCA) set out an action plan to enforce a new duty to customers after its review found that nine of the biggest savings providers, on average, passed on only 28% of BoE rate hikes to easy-access deposits between January 2022 and May this year.
The nine firms – Lloyds, HSBC, NatWest, Santander UK, Barclays, Nationwide Building Society, TSB Bank, Virgin Money UK, and the Co-operative Bank – passed on 51% to notice-period and fixed-term deposits over the same period.
Smaller lenders offer higher savings rates than their bigger rivals, the FCA added.
Five of the banks held about 260 billion pounds in easy access savings accounts offering 1% or less and they would be targeted, the FCA said. The BoE base rate is currently 5% and markets expect a hike to at least 5.25% on Thursday.
The FCA said it does not expect the full BoE rate to be passed on to savers given that historically the gap is about 2%.
NOT A PRICE REGULATOR
Banks should “speed up” decisions on savings rates to within a couple of weeks of a BoE move, Sheldon Mills, the FCA’s executive director of consumers and competition, told reporters, adding that the FCA would not be a “price regulator”.
“Firms offering the lowest savings rates will be required to justify by the end of August how those rates offer fair value, according to the consumer duty that enters into force today,” the FCA said in a statement.
“If they are unable to do so, the FCA will take action.”
The new duty requires firms regulated by the FCA to compile evidence that they are ensuring “good outcomes” for customers across products, services, value and after-sales support.
Banks and building societies offering the lowest rates have to complete a “fair value” assessment for the regulator by the end of August. Those that fall short are promised “robust” FCA action by the end of the year.
Parliament’s Treasury Select Committee, said the action by the FCA represented more progress for savers.
The FCA will also review the timing of changes to savings rates each time BoE rates move, publish an analysis every six months of the best and worst easy-access rates, analyse how savings products contribute to profitability and, by the end of March 2024, review how firms engage with customers.
Image by: Reuters