The city watchdog's crackdown on "double dipping" should see investors save £10m in fees every year, it estimates.
The Financial Conduct Authority (FCA) revealed that of the 13 investment platforms that have stopped the practice of “double dipping”, it estimates investors will see a fee saving of around £10m per year.
The revelation was made by Sheldon Mills, executive director of consumers and competition at the FCA, as part of his ‘Taking the leap on the Consumer Duty‘ speech today.
In December 2023, the FCA wrote to the CEOs of investment platform and Self-Invested Personal Pensions (SIPP) operators ordering them to cease the practice of “double dipping” on customer cash balances.
This is where firms retain interest earned on cash balances held for customers, while charging customers a fee for the pleasure.
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.
Meanwhile, of those retaining interest, 61% charged a platform fee. Given interest on cash balances has “increased substantially” thanks to the Bank of England’s (BoE’s) successive base rate rises over the past two years, it was concerned that the way these platforms use cash balances “may not be providing fair value to customers”.
The FCA added that this may not be understood or properly disclosed to customers. And in light of the Consumer Duty, which came into effect last summer for open products and services (today for closed products and services), the practice may not be in line with the Duty.
Cash interest rates and GAP insurance
Elsewhere, Mills also revealed that as part of the FCA’s cash savings work, it has seen firms “act more quickly to increase rates” following base rate increases.
The base rate rose by 0.25ppt between July 2023 and February 2024. During this time, firms, on average, increased rates for easy-access deposits by 0.45ppt.
As a result, the FCA estimates savers will get an additional £4bn in interest payments per year, “money they can save or reinvest, use to pay down any debt, or that might boost spending in the wider economy”, Mills said.
Turning to GAP insurance – the difference in the price paid for a car and its current market value – the FCA suggested customers will save around £70m after asking firms to look at their commission structure, and to improve the value of these products.
Mills said: “The duty is already having a tangible impact on consumer outcomes. And it has been driving improvements in firm culture, conduct and governance, too, which over time will drive better outcomes still.
“The Consumer Duty is deliberately flexible to adapt to changes as an outcomes-based measure. It allows space for firms to innovate and find new ways of serving their customers as the world around us changes, all the while being clear on our expectations for good consumer outcomes.
“We have been, and will continue to be, proportionate in our approach to supervising the duty. And we will continue to work with firms to get the duty right in response to practices we are seeing.”
