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FCA Address Concerns on Treatment Of Customer Cash Balances


The FCA has written a ‘Dear CEO letter’ to 42 investment platforms and SIPP operators about its concerns regarding the manner in which firms deal with any interest earned on customers’ cash balances. Cash balances includes client money balances for which firms have given clients written notice to retain interest under CASS 7.11.32R, as well as balances held on deposit via mandates and contractual arrangements.

Firms are now expected to have fully implemented the Consumer Duty. Part of this would include acting in good faith, ensuring price and value in the products and services offered; and ensuring there is an adequate level of understanding and support. The FCA found there to be a high degree of variance in the quality of disclosures made to consumers on the retention of interest, with information being difficult to find and difficult to understand. Furthermore, where the retention of interest exceeds operating costs, or where a fee is also charged on the cash balances held, this would not provide fair value, and may be seen as causing foreseeable harm to customers.

Investment platforms and SIPP operators are expected to review their approaches, confirm they have done so to the FCA and provide the following information:

  • Confirmation that the firm has ceased or will cease double dipping (where it was previously charging fees for holding cash while retaining interest earned on customers’ cash).
  • Confirmation of any changes the firm has made or intends to make to the rate of retention of interest on customer cash balances.
  • Confirmation that the firm has revisited their Fair Value Assessment in line with the obligations set out in PRIN 2A.4 and is prepared to provide this assessment to the FCA on request.
  • Evidence of any improvements to disclosures, including website and customer literature, regarding the retention of cash interest on customers’ cash balances, which the firm has implemented as a response to this letter.
  • A copy of the section of the firm’s terms and conditions that outlines the treatment on interest on customer cash balances. Where these terms assert that the interest retained is designed to cover operational costs, the firm should provide an explanation to the FCA of how it has have calculated what an appropriate amount of retained interest is to reasonably reflect these costs.
  • If the firm believes its practices are already compliant with the Consumer Duty and as such the firm does not intend to make any changes further to this letter, confirmation of the reasons why not, with supporting evidence demonstrating compliance with the relevant Consumer Duty requirements.

Firms must provide the confirmations and information requested above by close of business on 31 January 2024 and have made the corresponding changes by close of business on 29 February 2024.