The UK Financial Conduct Authority (FCA) has been pounded the drums for some time now on the interest earned by consumers on cash balances held on various platforms.
While interest rates have risen dramatically in the past couple of years, many financial institutions have been slow to pass on the increase to consumers. In effect, they are keeping the increase to themselves. This is not the case at all firms and some Fintechs have leveraged this disparity to gain customers but inertia in changing accounts is a challenge.
Today, the FCA states that it has written to some firms, investment platforms, and SIPP (Self-Invested Personal Pensions) operators” criticizing these firms and voicing their concerns.
The FCA noted that it had recently surveyed 42 firms and found the majority retain some of the interest earned on these cash balances, which may not reasonably reflect the cost to firms of managing the cash. Some also charge a fee to customers for the cash they hold, described as “double dipping.”
The FCA believes these activities are unfair, not properly disclosed and not understood by some consumers. In the case of double dipping, these firms have been told to stop.
FCA Executive Director of Consumers and Competition Sheldon Mills stated the following regarding the issue:
“Rising rates mean greater returns on cash. Investment platforms and SIPP operators need now to ensure how much of the interest they retain and, for those who are double dipping, how much they’re charging customers holding cash, results in fair value. If they cannot make that case, they need to make changes.
“If they don’t, we’ll intervene.”
These firms have been given significant leeway as they have been on notice for some time now. The FCA has now set a deadline of February 29, 2023. It is somewhat interesting that the FCA has not come out and named the errant firms, or “name and shame.” But then it can be easy to view published rates on financial services firms’ websites. A report by Reuters pointed to both Hargreaves Lansdown and AJ Bell taking a tumble on the LSE following the announcement.