Platform losses not an excuse to keep cash interest

Some investment and SIPP providers have been retaining interest earned on cash-holdings to subsidise loss-making platforms, according to an FCA study published today. The FCA has launched in-depth reviews of fair value assessments from 10 investment and SIPP platform providers to find out more. While some providers and platforms are performing well - in relation to the Consumer Duty - others are providing examples of poor practice, the regulator said in a Consumer Duty update. The regulator published a Consumer Duty update today on 'good and poor practice' in its Price and Value Outcome report. The FCA's Consumer Duty, introduced in July 2023 for new products and extended in July 2024 to legacy products, requires evidence that clients are being treated fairly at all stages of the "customer journey." The report out today focuses on platform cash, cash savings and GAP insurance due to “long-standing concerns” about value in these areas. One example of poor practice cited by the regulator was when firms consider costs. The report said that general business costs have been included by platforms in their price and value reporting without adequate explanation. The FCA said: “There are also practices that are relevant to other costs such as general business costs. Here we have observed poor practice from some firms explaining retention of interest earned on cash-holding facilities by stating, without adequate elaboration, that this helps with the costs of running their platforms, which are loss-making.” The FCA says there is no bar on cross-subsidy of products and services within firms but they should not be at the disadvantage of some clients. In its report the FCA added: "The Consumer Duty does not prevent firms from adopting any business models which may have different prices for different groups of consumers. It also does not prevent cross-subsidies between different products or services. However, firms must demonstrate that all groups of customers get fair value from their products (and be particularly alert to risks that cross-subsidies may disadvantage vulnerable customers). In comparison, the regulator highlighted the good practice of one investment platform, “that linked the amount of interest retained to the costs to the firm of managing customers’ cash. The firm used illustrative examples of different types of customers (eg, with different holdings and different types of accounts) to demonstrate how much interest is retained and how much is paid to the customer. This example is also relevant to fees and charges.” Firms are not required to include costs in assessments of value, but where it is included the regulator said the analysis, “must be sufficiently clear to enable the assessment of fair value to be undertaken.” The regulator has recently criticised the practice of investment and SIPP providers charging a platform fee on cash holdings as well as retaining some of the interest earned on customers’ cash balances, referred to as ‘double dipping’. It referred to its concerns again in the Consumer Duty report, saying: “Some of our concerns about double dipping include the extra complexity which the practice adds to platforms’ charging structures, and a lack of transparency in the disclosures given to customers, affecting their ability to understand the value of the proposition overall.” The full report, including explanations of what good practice looks like for small firms, can be found on the FCA website.

Platform losses not an excuse to keep cash interest - FCA

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