Britain’s banks told to justify low savings rates by end of August

A person walks alongside the River Thames during sunrise, with London’s financial district in the background, in London, Britain, April 13, 2023. REUTERS/Henry Nicholls/File photo

LONDON  – Britain’s banks and building societies have until the end of August to justify to regulators why some of their savings rates are low or face sanctions, the markets watchdog said on Monday, as Bank of England rates look set to rise to their highest since 2008.

While the sector has been passing on higher interest rates rapidly to mortgage customers, lawmakers have criticized lenders for not upping rates on savings worth around 1.5 trillion pounds ($1.9 trillion) at the same speed, amid a cost-of-living crisis.

The Financial Conduct Authority (FCA) set out an action plan to enforce a new duty to customers after a review found that nine of the biggest savings providers, on average, passed on only 28 percent of BoE rate hikes to easy-access deposits between January 2022 and May this year.

The firms – Lloyds, HSBC, NatWest, Santander UK, Barclays, Nationwide Building Society, TSB Bank, Virgin Money UK, and the Co-operative Bank – passed on 51 percent to notice-period and fixed-term deposits over the same period.

Smaller lenders offer higher savings rates than their bigger rivals, the FCA added.

“Firms offering the lowest savings rates will be required to justify by the end of August how those rates offer fair value, according to the consumer duty that enters into force today,” the FCA said in a statement.

“If they are unable to do so, the FCA will take action.”

Signage is seen for the FCA (Financial Conduct Authority), the UK’s financial regulatory body, at their head offices in London, Britain March 10, 2022. REUTERS/Toby Melville/File photo

The new duty requires firms regulated by the FCA to compile evidence that they are ensuring “good outcomes” for customers across products, services, value and after-sales support.

Banks and building societies offering the lowest rates have to complete a “fair value” assessment for the regulator by the end of August. Those that fall short are promised “robust” FCA action by the end of the year.

The FCA will also review the timing of changes to savings rates each time BoE rates move, publish an analysis every six months of easy-access rates, analyze how savings products contribute to profitability and, by the end of March 2024, review how firms engage with customers.

($1 = 0.7781 pounds)