Britain's Financial Conduct Authority Open to Ending Free Banking Model

Britain’s Financial Conduct Authority (FCA) CEO, Nikhil Rathi, has expressed openness to potential changes in the country’s free banking model. Rathi stated that if banks needed to offset rising regulation costs by introducing fees for holding accounts, the FCA would not intervene. This announcement came during Rathi’s prepared remarks for a speech on Thursday.

Rathi emphasized the FCA’s commitment to prioritizing retail customer protection through its Consumer Duty rules. He acknowledged concerns that regulatory pressures have strained banking business models and margins. However, Rathi clarified that the ‘free-if-in-credit’ banking model in the UK is a market decision, not a regulatory requirement, except for basic bank accounts.

The FCA CEO highlighted fee-based banking approaches in other countries as examples. Additionally, Rathi mentioned that applying the Consumer Duty could potentially reduce compensation levies on financial firms.

Furthermore, Rathi assured that the FCA would be pragmatic in enforcing rules, focusing on breaches posing the greatest risk of harm. He encouraged cooperation from financial firms in providing data to expedite investigations.

Rathi addressed specific areas of focus for the FCA, including the cash savings market, insurance products, and possible overcharging in motor finance. He emphasized the importance of achieving earlier clarity on consumer harm to mitigate potential costs for banks.

Regarding advances in artificial intelligence (AI) in financial services, Rathi stated that immediate regulation was not the FCA’s instinct. These developments signal a potentially significant shift in the UK’s banking landscape, with implications for both financial institutions and consumers.