FSA poised to take over retail banking regulation

The Financial Services Authority will take control of retail banking regulation for deposit-taking and payment services in November.

At the moment, the Banking Code Standards Board monitors and enforces the voluntary Banking Code that governs banks’ relationships with their customers.

From November, these arrangements will be replaced by FSA rules which all banks, building societies and credit unions will be obliged to follow.

Notable changes that will affect consumers include a requirement to provide a prompt and efficient service to help customers switch accounts.

This would apply more widely than commitments in the existing code, for example when it comes to cashing ISAs where the FSA has noted delays in the past.

The hope is that when it comes to switching accounts, bank customers will be able to have their transfers completed promptly, no matter what type of accounts are involved.

Another key area that will be affected is the provision of information. At the moment, some informative material about banks’ products and services must be communicated to individuals once they become customers.

The FSA’s regulations will require this information to be made available to consumers at the point at which they most need it in the view of the regulator – when they are making the decision whether or not to become a customer of a bank.

According to the FSA, its rules are intended help consumers make informed and timely decisions about banking services, allowing them to choose the most appropriate accounts for their needs. It also claims they will help customers understand how they can use their accounts more effectively.

And the regulator intends to ensure that quality of service is maintained long after individuals have become bank customers. One of its requirements will insist that customer service is prompt, efficient and fair for the duration of the relationship.

Banking institutions will also have to comply with an explicit requirement to treat their customers fairly, including when dealing with individuals who find themselves in financial difficulties and when processing payments.

The greater enforcement powers of the FSA compared with the BCSB should have a deterrent effect that is missing under the present regime.

The regulator can, and where appropriate undoubtedly will, fine banking institutions if they fail to comply with its regulations in a way that is detrimental to customers, in the FSA’s opinion.

Jon Pain, managing director of retail markets at the FSA, said: “These are important standards that banking institutions will have to comply with. They will affect consumers’ everyday interaction with banks.

“Before the rules come into force the FSA will publish comprehensive information for consumers detailing their rights and outlining what they can expect from their banking service providers.”

The FSA’s rules will run alongside the existing Payment Services Regulations.

The move has been welcomed by the industry.

A spokesman for Nationwide said: “We welcome this initiative and are supportive of the regulator’s objectives.

“Anything that promotes transparency and fairness for bank customers by increasing awareness must be good news.”

But Which? has warned that the FSA will have to clamp down on firms if it wants to make the new arrangements work.

Vera Cottrell, personal finance campaigner at Which?, said: “The FSA has to get tough and use its full range of powers to keep banks in check. If it relies on the industry to monitor itself, consumers could find themselves worse off.

“Instead of closing the stable door after the horse has bolted it must be proactive in finding and dealing with problems or consumers will lose out.”