FCA probes platforms' cash interest policies

Friday, 14 July 2023 10:01

The FCA has written to investment platforms and SIPP providers to ask them to disclose how much of the interest they receive from cash and bank deposits they pass on to their customers.

The issue has come into focus in recent months as interest rates on cash deposits have risen sharply, with some banks offering deposit rates of up to 6% or more.

Policies on how cash interest on client accounts is handled vary widely between platform providers.

Some platforms, such as Transact, return all cash interest to clients but other providers, such as Quilter, use the interest on cash to reduce client fees elsewhere. Others have variable policies, with some passing on interest on cash and some at least part of the interest.

There is no common policy and no clear regulatory requirement although the new Consumer Duty may change this with its requirement to treat customers fairly at all times.

A spokesman for the FCA said: “We are looking to understand in greater detail how interest on customers’ cash is treated in the investment platform market, and to understand how platform firms have considered their approach to this interest in line with the Consumer Duty. We have also asked some SIPP firms the same questions.”

The FCA wants to ensure that customers are treated fairly on the interest they receive on cash and bank deposits held as part of their investments, as well as bank accounts.

The watchdog held a meeting with banks last week and says it will look at other products where interest is paid to consumers.

The text of the letter to firms on their cash interest policies comprises these questions:

Does your platform retain any of the interest it earns on customers’ cash balances?

If the answer is ‘yes’:

1. What are the current rates of interest you receive on customers’ cash balances? Can you please include in your answer:

a) the current average rate

a) if you receive different rates from different banks (or deposit takers), a table setting out these different rates

1. Of the interest you earn from customers’ cash balances, how much of this do you pass on to your customers? Can you please include in your answer:

a) the current average rate

a) if you are paying customers different rates for different accounts (e.g., ISA, SIPP, GIA) and different (tiered) amounts held in cash, a table setting out how the amount paid varies by account and amount

2. How have the above rates (covered by questions 1 and 2) changed over the last 18 months? Please set your answer out in a table with a short explanation as to why the rate changed and the impact of the change.

3. Do you have plans to change the rates you pay in the future? If so, please outline these for us and explain the rationale.

4. How much has the firm earned in interest on customers’ cash balances over the last 18 months. Could you please set this out in a table, broken down by month.

5. Does your firm apply an account fee to cash held in its customers’ investment accounts? If the answer is yes, please let us know the amount and nature of this fee (e.g., percentage of AUA; flat fee). If the fee varies between different wrappers (e.g., ISA, SIPP, GIA), please set out the varying amounts in a table.

6. Please provide a link to the location on your website where you explain your approach to the retention of interest to your customers.

7. Has the firm reviewed its approach to the retention of interest in the light of the Consumer Duty?

8. If so, could you summarise the outcome of that review?”

The FCA plans to use the information to decide if further action needs to be taken or if further information is required.