The UK’s top financial regulator has engaged directly with the boards of some high street banks for failing to pass on interest rate rises to savers as swiftly as hikes have been foisted on borrowers, intensifying the pressure on lenders which will soon have a legal duty to act in their customers best interest.
Nikhil Rathi, chief executive of the Financial Conduct Authority, told the Treasury select committee on Wednesday afternoon, that the regulator was pushing banks to act ahead of new consumer protection rules that come into force in July when they will have “nowhere to hide”.
He told MPs: “We’ve already raised this specific issue [of the speed of rate rises], with, in some cases boards of banks, so it’s firmly on their agenda. We expect them to be looking at it. We certainly don’t want to be raising it [with boards] repeatedly.”
The FCA wrote to bank chief executives in February warning the regulator was monitoring them for any unfair treatment of customers, such as raising the interest rates on products like mortgages without passing on corresponding increases to those with money on deposit.
“We do not set prices . . . but we do have an objective to make sure that markets operate with competition and in the interests of consumers,” Rathi told MPs.
He said the FCA was examining areas such as whether banks were using “customer inertia” that stops them from shopping around for better deposit rates, as a reason not to raise rates. Supervisors are also looking at whether banks’ governance practices are “encouraging decisions on mortgages to be made faster than on savings”. “In some cases we have seen that,” Rathi added.
Bank of England data shows that the average interest rate on a two year fixed rate mortgage with a loan to value of 60 per cent has risen from 1.39 per cent at the end of 2021 to 4.72 per cent now. The average interest rate on instant access deposits has risen from 0.11 per cent to 1.63 per cent over the same period.
Senior executives of the UK’s top four banks were heavily criticised last month by members of the Treasury select committee for not moving fast enough to raise savings rates.
At Wednesday’s hearing, Rathi also said that the FCA had cut its estimate of how many people would be financially stretched to pay their mortgages by the end of June 2024 from 570,000 in November to 356,000 “because of just how fast these markets are moving”.
