FCA chief admits ‘pace has been slow’ passing interest rate rise to savers

Appearing at a Treasury committee hearing today (July 19), Rathi was quizzed on what action the FCA is taking on the existing savings rates being offered by banks.

Rathi said the FCA has been raising this issue publicly since May last year but argued that the movement has been slow.

“The way that banks handle this period, both in terms of supporting vulnerable customers and customers who are struggling and savers - which are specifically called out - will be very deterministic of their reputation for many years to come,” he said.

“The pace has simply not been fast enough. We have stepped up our engagement and we were always expecting as the consumer duty comes into force on July 31, that the pace would accelerate.”

This comes as earlier this week, Barclays, HSBC, Lloyds Banking Group, NatWest Group and the FCA outlined to MPs what work they are doing to improve savings rates for consumers.

Earlier this month, the Treasury committee asked the chief executives of the UK’s largest banks if all their savings products provide ‘fair value’ to customers, whether customer inertia is being exploited and what steps they’re taking to notify their customers of higher rates available.

Rathi explained that when discussing macroeconomics, there is also an important point about composition of savings. 

“During the pandemic, a lot of consumers accrued savings particularly in their current accounts and because we've had a period of such low interest rates for a long period of time, the habit of switching eroded somewhat,” he said. 

“That is coming back now and people are starting to move into term deposits which is better for the stability of banking books, and to the extent that people are able to do so, instant access rates are moving up.”

He added: “My voice to consumers would be to shop around and if your bank is not giving you a rate that you're satisfied with, move on.”

Rathi explained that with the consumer duty coming in soon, the pace has “quickened in the last few weeks”. 

The regulator’s powers are linked to competition in the market and that's what the FCA has been focusing on.

“The consumer duty goes further in extending the way in which we look at how they're communicating with consumers and how they're ensuring good outcomes for all consumers,” he said. 

“We have a long standing position in our market where the best rates you tend to get from building societies, the digital and challenger banks are close behind and the high street tends to provide the lowest rates now. 

“We're not a price regulator. We don't go in and set prices but we want to make sure that customers understand what options are available, that where a bank is delivering a better rate, that they are proactively communicating with their customers.”

Savings charter

Some banks told the FCA that they could not inform consumers about better details due to data protection - such as if they have opted out of marketing communications. 

However, Rathi argued that this was not a “particularly convincing set of arguments”.

MPs also quizzed the FCA boss on whether a savings charter, similar to a mortgage charter, could work. 

However, Rathi said he was “less keen” on the idea as the mortgage charter is about how you treat customers or vulnerable customers, while in savings, the FCA wants a vibrant, dynamic competitive market where people are competing with each other to win business .

“We have to be quite careful about seeking to coordinate pricing decisions in that market that we have got,” he said. “We have got a reasonably competitive market. We want to make sure that it's functioning effectively.”

“We talked about what the benefits of the consumer duty and it's very hard always to prove causation, but with £1.5trn pounds of savings in the economy, if there is even a point 1 per cent adjustment in race that's over £1bn accruing to consumers.”

He explained that the FCA and banks have worked to simplify their ranges, such as starting to stop differentiating between front and back books. 

“There's one very important point I want to make though, is about diversity of business models,” Rathi added.

“We will have building societies for example, that will have a different business model to banks or some will have savings rates, which may look low on the surface but then they pay the money back as member dividends or they commit to keep their branches open. 

“So whatever we do here, we want to make sure we respect the diversity that we have in the market, including in the mutual's sector.”

sonia.rach@ft.com

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