FCA Open to UK Banks Charging Account Fees

15 March 2024

In a recent statement, Nikhil Rathi, CEO of Britain’s Financial Conduct Authority (FCA), indicated that the regulator would not obstruct any initiatives by banks to introduce fees for account services, a shift from the nation’s long-standing free banking model. This comes as financial institutions grapple with the costs associated with rising regulatory pressures.

Addressing the potential change during a speech, Rathi emphasized the FCA’s commitment to protecting retail customers through its Consumer Duty rules. He acknowledged the banking industry’s concerns that increased regulation might be straining their business models and profit margins. “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,” Rathi stated.

The CEO clarified that the current ‘free-if-in-credit’ banking model in the UK is not mandated by regulation, except for basic bank accounts, and that fee-based banking approaches are common in other countries.

Consumer interest groups have expressed alarm over Rathi’s comments. Simon Youel, head of policy and advocacy at Positive Money, described the potential shift away from free banking as “extremely concerning” and criticized banks for not passing on the benefits of higher interest rates to depositors.

Rathi, who has been at the helm of the FCA since October 2020, also touched on the application of Consumer Duty rules potentially reducing compensation levies on financial firms. He assured that the FCA would enforce these rules pragmatically, focusing on breaches with significant risk of harm but being lenient with firms that have made genuine efforts to comply.

The FCA is also seeking to provide early clarity on consumer harm from potential overcharging in motor finance. With some of Britain’s largest banks already setting aside substantial funds for possible redress, Rathi urged firms to cooperate fully with data requests to expedite the FCA’s investigations.

Lastly, Rathi mentioned that immediate regulation of advancements in artificial intelligence within financial services is not a current instinct for the regulator.

As the banking sector contemplates the implications of these developments, stakeholders and customers alike are closely monitoring how these potential changes could reshape the landscape of banking services in Britain.

Banking fees

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