FCA Warns UK Banks on Savings Rates

LONDON (Reuters) – The largest banks in Britain are paying below-average interest rates for some savings accounts and may face regulatory action if they fail to improve value, the Financial Conduct Authority (FCA) warned on Wednesday.

The FCA, which began a review of the cash savings market last year, collaborated with Lloyds, HSBC, NatWest, Santander UK, Barclays, Nationwide Building Society, TSB, Virgin Money UK, and the Cooperative Bank.

Under the FCA’s Consumer Duty, effective since last July, banks and other financial companies must ensure that customers receive fair value and that no group is offered a worse deal for the same product.

Savers are expected to gain an additional £4 billion ($5.3 billion) per year as average rates for easy access savings accounts increased to 2.11% in June from 1.66% in July. Nearly 175 instant access accounts provide rates above 4%, according to the FCA.

However, major banks still pay below-average rates on standard easy access products, prompting the FCA to question some firms’ methods for assessing product value.

The FCA stated, “We expect firms will improve fair value assessments over time and we will take appropriate action where we consider this is not the case.” Regulatory actions may include collaboration with firms to enhance customer value or imposing penalties.

In August, the Bank of England reduced bank rates to 5% from a 16-year high of 5.25%, with economists anticipating further easing as Britain’s challenges with sluggish growth and high inflation might be waning.

($1 = 0.7560 pounds)