Published On: Thu, Mar 14th, 2024

‘Slap in the face’ for millions as City watchdog clears way for end of ‘free banking’ | Personal Finance | Finance

City watchdogs have paved the way for banks to charge customers for current accounts in an end to free banking.

The Financial Conduct Authority (FCA) has said it “would not stand in the way” of moves to end the free banking model if lenders chose to offset rising regulation costs by charging fees.

In remarks prepared for a speech later on Thursday, its chief executive, Nikhil Rathi, said he had heard concerns that regulation had played a role in increasing pressure on banking business models and margins.

He said: “We have always been clear that if business models need to change in response to competition and a changing market, we would not stand in the way.”

He also indicated that the idea of free banking on current accounts is not sacrosanct, adding: “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 pointed out that many other countries already impose fees on current accounts.

Consumer interest groups were critical of Rathi’s remarks, with one describing the potential reform as “extremely concerning”.

Simon Youel, head of policy and advocacy at Positive Money, said: “Banks’ margins are hardly being squeezed, with lenders enjoying record profits driven by higher interest rates which they’ve withheld from depositors.

“It is bad enough that banks are cutting access to in-person services with branch closures – cutting access to free current accounts as well would be another big slap in the face to the public.”

Rathi, who has led the FCA since October 2020, said the FCA is also looking at taking a more lenient approach with financial institutions which may be guilty of mis-treating customers.

He said the regulator would be “pragmatic” when enforcing the rules. It would concentrate on tackling breaches that pose the greatest risk of harm but look “favourably on firms that have made reasonable efforts to address concerns”.

He said: “We’re not setting out to trip firms up by going after technical breaches.”

Britain’s financial institutions are facing massive bills to compensate consumers who were mis-sold and overcharged for car finance.

Some of Britain’s biggest banks have set aside hundreds of millions of pounds to cover possible redress linked to the FCA’s probe into the mis-selling. Some analysts estimate the banks’ potential costs could rise as high as £2billion.

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