Investment platforms and SIPP operators have been told to cease the practice of 'double dipping' on customer cash balances – where they retain interest and charge investors for the pleasure.
The Financial Conduct Authority (FCA) said it is concerned by the way some firms handle interest on cash balances which has “increased substantially” thanks to the Bank of England (BoE)’s successive base rate rises over the past two years.
A survey of 42 firms by the FCA revealed that 71% keep some of the interest earned on customer cash balances, retaining 50% on average. Collectively, of those retaining interest, they earned £74.3m in revenue in the month of June 2023 alone.
For those retaining interest, 61% also charge a platform fee to customers for cash held, a practice known as “double dipping”.
It said firms offered several justifications as to why they retained interest, from covering the cost of managing cash, to discouraging long-term allocations of cash in platform accounts.
Either way, the regulator said it is concerned that the way these platforms use cash balances “may not be providing fair value to customers” and may not be understood or properly disclosed to them, particularly in light of the Consumer Duty which came into effect in summer.
In a ‘Dear CEO’ letter sent to platforms and firms today, it also said double dipping “may be particularly likely to confuse consumers” and that it does “not consider that it demonstrates that a firm is acting in good faith, that is honest, fair and open dealing, and acting consistently with the reasonable expectations of customers”.
It has outlined a series of changes it expects platforms to make, including reviewing how they approach customer interest on cash balances, reviewing and updating terms and conditions if necessary, and making sure they are following the relevant rules when it comes to communication to customers. They must also cease the practice of double dipping.
Firms must contact the FCA with confirmation of these changes by 31 January 2024 and implement them by 29 February 2024.
‘If they don’t, we’ll intervene’
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Rising rates mean greater returns on cash. Investment platforms and SIPP operators need now to ensure how much of the interest they retain and, for those who are double dipping, how much they’re charging customers holding cash, results in fair value.
“If they cannot make that case, they need to make changes. If they don’t, we’ll intervene.”
