The FCA bares its Consumer Duty teeth

The FCA bared its new consumer duty teeth once again this morning – hammering investment platforms for failing to pass on the benefit of rising interest rates to their customers.

The regulator wrote to investment platform CEOs back in September, letting them know that paying little or no interest on cash balances was unlikely to meet its new fair value rules at a time when interest rates were over 5%.

Today, it followed up with a second much stronger letter – highlighting that the vast majority of firms are still retaining too much interest – and making it clear that platforms must change their ways by the end of February.

Its action follows less than a week after AJ Bell released results announcing a massive 50% increase in profits – mostly driven by increased earnings from customers’ cash balances.

Today’s news hit the share prices of both AJ Bell and Hargreaves Lansdown – two of the UK's largest investment platforms. AJ Bell pays interest rates of just 1.95% on cash balances below ￡10,000 in its stocks and shares Isas, Junior Isas and Lifetime Isas. This rises to 2.45% for balances over ￡10,000 – still less than half of the current base rate.

And AJ Bell is by no means the worst in the market. When it comes to general investment accounts – almost 60% of accounts pay no interest at all on cash balances. While even in stocks and share Isas – where customers are not able to easily transfer cash without losing their tax breaks – just over half of accounts are paying nothing.

Firms have been given until the end of January to come up with proper fair value reports – and new pricing – then until the end of February to make the changes. Those who continue to ignore the regulator can expect to find themselves on the end of enforcement action.

Four and half months on from the implementation of consumer duty – we’re starting to get a clear picture of the regulators’ playbook. Generic and gentle Dear CEO letters are the first step. But if companies choose not to take the hint – as has been the case in the investment platform sector – the second step is a much more strongly worded letter than demands action. These are – rightly so – powerful enough to knock share prices. And for those firms who choose to hold firm, further targeted pressure and the threat of enforcement looms.

So the investment platform sector has been the test ground. But the FCA is just getting started. Top of my list for a shake up are credit cards, over 50s plans and travel insurance. Where do you think they will go next?

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