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Author Ben Leonard
The Financial Conduct Authority (FCA) recently announced that they think it should be easier for consumers to compare current accounts.
In order to back this announcement, the FCA also unveiled key proposals that are designed to help consumers compare key parts of their current and business current accounts.
Christopher Woolard, the FCA’s executive director of strategy and competition said,
“Customers tell us they think ‘all banks are the same’ and so they are discouraged from looking for current accounts offering better performance,”
“These proposals represent a step forward, making it easier for consumers to judge whether their bank is offering good service and for firms to see if they are competing effectively against other providers.”
Therefore, rolling out these proposals will give consumers a wider choice when it comes to banking.
The overall proposal from the FCA means that certain key pieces of information should be readily available for use by consumers. This means that banks and other financial firms will have to be more transparent about certain issues, such as how long it takes to open an account, to how many security breaches the bank has suffered from.
The FCA’s proposal would require all financial firms to publish information per brand, rather than per firm. This would apply to all firms that have more than 70,000 personal current accounts or at least 15,000 business current accounts.
The scope of the rules is aligned with the existing scope of the FCA’s BCOBS and is limited to accounts held by “banking customers” within the meaning of BCOBS.
The FCA also stated that these recommendations would hopefully encourage consumers to “consider their banking arrangements”. They went on to highlight that consumers who used overdraft facilities would benefit from increased transparency. This is not surprising, as the FCA set their sights squarely on overdraft fees back in November 2016.
The FCA has the consumer in mind here, but this information will no doubt be used mostly on price comparison websites. However, either way, it is used, the FCA is hoping that it will drive competition and increase the quality of service across the board.
In order to measure whether this proposal has had an impact, the FCA is suggesting that performance is measured quarterly, starting in April 2018. They also suggested that each report should be published within six weeks of the end of the quarter.
Depending on whether or not the FCA’s proposal is adopted, the first report should be published around August 2018. This coincides well with the publication of other service indicators that the Competition and Markets Authority are publishing.
What is the FCA?
The Financial Conduct Authority – commonly referred to as the FCA – is a government regulatory body that regulates the British finance industry. It operates outside of the government, so they are not controlled by government mandate or agenda.
Instead, they are able to campaign for what is fair for the consumer, rather than what the banks need. Because of this, the FCA is largely able to maintain the integrity of the UK financial markets.
Despite many of their mandates being focused on what’s right for the ‘consumer’, this doesn’t just mean the FCA focus on retail banks. They can regulate both consumer banks and wholesale financial firms.
The FCA has quite a lot of power when it comes to the financial industry. They’re able to regulate conduct related to the marketing of financial products, as well as specify minimum standards and requirements for products. They can even investigate organisations and individuals that are deemed necessary.
In extreme cases, the FCA is able to ban the sale of certain types of financial products or even instruct financial firms to immediately retract or modify promotions that are misleading for the consumer.
The FCA is a key player in the City and across the entire British financial market. So, when they say that current accounts need to be more transparent, financial firms will listen up.
Who wants to compare current accounts anyway?
Changing current accounts is one of the best ways that consumers can save or even earn money over the long run. As the FCA is supposed to have the consumers’ best interests at heart, it makes sense that they would want to improve the transparency when it comes to comparing current accounts.
There is a widely held belief that many consumers don’t ever change their banks or current accounts, and that they are more loyal to a bank than they are to a partner.
However, it doesn’t seem like consumers are really that loyal. The number of consumers changing their bank accounts hit a record high in April last year. Almost 125,000 people switched their account to a rival lender in April last year.
This year doesn’t seem much better. The numbers are published 6 months in arrears, but we can already see a strong pattern of migration between banks from 2016 Q4, as consumers get annoyed by big headline news – such as the halving of the interest rate on Santander’s flagship 123 accounts.
In light of the FCA’s proposals, is it likely that we will see more current accounts switching than previously? If so, the hardest hit will likely continue to be those that make the headlines, such as Santander and HSBC.
In contrast, both Halifax and Nationwide could see a massive influx of new customers. The Current Account Switching Service (CASS) makes it even easier to switch current accounts and with the FCA’s increased transparency, there will be few reasons to stop customers from switching.
Luckily for Santander and HSBC, there is still time before the FCA’s proposal is agreed and comes into effect. They’ll have to start evaluating their perks, including interest rates, in order to get customers to return to them. Otherwise, they could start to see current trends amplified even further, much to their detriment.