FCA won’t stand in the way of an end to free banking

The UK’s financial watchdog has said it will not stand in the way of financial institutions if they decide to move away from a free banking model.

The Financial Conduct Authority's (FCA) comments come after some banks raised concerns that its new Consumer Duty, which came into force last summer, has put pressure on business models and margins.

But the regulator's chief executive Nikhil Rathi said that the organisation has always been clear that if business models need to change in response to competition and a changing market, it would not hold banks back.

“For example, the free if in credit banking model in the UK is a market and commercial decision, not a regulatory requirement, other than for basic bank accounts,” he told delegates at a Morgan Stanley-run conference on Thursday, pointing to other countries that have a fee-based approach.

Rathi said that the obligation for banks to provide fair value for their customers under the new Consumer Duty rules is not a "Trojan horse for price regulation".

“We do not want to regulate prices, just as we don’t want to restrain profits for well-run businesses,” he continued. “Indeed, firms which deliver the outcomes in the Consumer Duty well should have a competitive edge.”

Rathi pointed out that in the past it has only ever acted on price where there were "unacceptable outcomes", like with payday lending.

The Consumer Duty will ultimately mean fewer detailed or reactive rules and, if firms get it right, analysts will "spend less time talking about provisions for redressing issues of the past", he added.

In the future, this should reduce the Financial Services Compensation Scheme levy, Rathi told banks.

The FCA chief executive went on to praise many firms who have approached the new regulation "in the right spirit" by using simpler and more accessible language; being more upfront about product exclusions; and reviewing fair value, with some fees being removed or restructured.



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