Savings providers will have to prove to the Financial Conduct Authority that they are offering fair value, the regulator has said.
Here is a look at how the FCA’s action plan will support the cash savings market:
– What has been announced?
The FCA has set out a 14-point action plan to make sure savings rates are being passed on appropriately.
As part of the action plan, the regulator will require firms offering the lowest rates to provide “fair value” assessments under the consumer duty by August 31 2023.
It will take “robust action” by the end of 2023 against those who cannot demonstrate fair value.
– What else is part of the action plan?
The FCA will review the timing of firms’ savings rate changes each time there is a base rate change.
The Bank of England base rate currently stands at 5% and it is expected to potentially rise again on Thursday.
The regulator will also publish an analysis every six months of firms’ easy access savings rates and it will look at the differences between on and off-sale savings deals, challenging firms to explain how big differences offer fair value.
– What does the FCA expect firms to do?
Firms should support customers to start a savings habit and find decent rates.
They should prompt savers with accounts which are paying little or no interest to consider what else is available.
They should also be closely monitoring how effectively they communicate with customers, with bigger firms providing the FCA with an evaluation by end 2023 and any follow-up action they are taking.
– How does the consumer duty fit into this?
The new consumer duty came into force on Monday July 31.
It sets higher and clearer standards of consumer protection across financial services.
Under the duty, firms will have to provide products which are fit for purpose, offer fair value and work as the customer expects.
Firms should also be able to explain and justify their pricing decisions under the duty.
The new duty has come into force for new and existing products and services that are open for sale or renewal.
It will be introduced on July 31 next year for closed products or services.
It means that savings providers should now be using fair value assessments of on-sale savings products, to assure themselves and the FCA, where needed, that these represent fair value for customers.
The FCA also said it expects savings providers to accelerate their fair value assessments for off-sale accounts, ahead of the July 2024 consumer duty deadline for off-sale accounts.
– What will the FCA do if it finds that what savings providers are doing is not up to scratch?
The regulator will take “robust action” by the end of 2023 if those firms offering lower rates which have been asked to provide fair value assessments under the consumer duty by August 31 2023 are unable to demonstrate fair value.
It will also review the effectiveness of firms’ engagement with customers by the end of March 2024 and take action if firms have not effectively delivered the appropriate outcomes.
