Firms must halt ‘double dipping’ on cash savings

The FCA is cracking down on the practice of so-called ‘double-dipping’ by investment platforms and SIPP operators whereby they keep interest on customers’ cash balances and charge them a fee for doing so. The regulator accused firms of making millions from the practice and told them to cease it by February. In a Dear CEO letter sent today to firms the watchdog sets out its concerns on the way firms deal with any interest earned on customers’ cash balances. Interest on accounts has become a major issue as interest rates have soared, providing a windfall for many providers if they retain the cash. The FCa acted after recently surveying 42 firms and finding the majority retained some of the interest earned on cash balances. It said the retention of interest may not reasonably reflect the cost to firms of managing the cash. Many firms also charge a fee to customers for the cash they hold, known as ‘double dipping’, the FCA said. Of the platforms which retain interest, 61% also charged a platform fee on the customer cash they hold, it said. In its letter it said: “In the month of June 2023 alone, the 42 firms we recently surveyed who retain interest collectively earned £74.3m in revenue from this practice.” The regulator said it was concerned the practice may not be providing "fair value" to customers and may not be understood by consumers or properly disclosed. It has told firms to stop double dipping. 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.” Firms need to make any changes by 29 February. The FCA said investment platforms and SIPP operators must review their approach to the retention of interest on customers’ cash balances and cease the practice of double-dipping. Firms must provide it with confirmation that they have done so. The FCA sampled 42 firms starting in July. It wrote 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. 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 but the FCA’s said that Consumer Duty has changed this with its requirement to treat customers fairly at all times. In its letter the FCA said: “Firms are expected to have fully implemented the Consumer Duty. They should do this by demonstrating adherence to the cross-cutting rules by acting in good faith, avoiding causing foreseeable harm, and enabling and supporting retail customers to pursue their financial objectives. "Firms should also demonstrate that they are meeting the four outcomes of products and services that are fit for purpose, price and value, consumer understanding and consumer support. Based on the information we received in July 2023 from a sample of 42 investment platforms and SIPP operators, we are concerned that some firms’ treatment of the interest earned on their customers’ cash balances may not be in line with the Duty.”

Firms must halt ‘double dipping’ on cash savings

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