FCA Writes To Firms About The Treatment Of Retained Interest
What has happened?
In December 2023, the FCA wrote a Dear CEO letter to investment platforms and SIPP operators setting out its concerns about the way they deal with any interest earned on customers’ cash balances.
What are the key points?
The amount of interest earned by some firms has increased as rates have risen. The FCA recently surveyed 42 firms and found that the majority retain some of the interest earned on these cash balances, which may not reasonably reflect the cost to firms of managing that cash. Many also charge a fee to customers for the cash they hold, a practice known as “double dipping”.
The FCA is concerned these practices may not be providing fair value to customers and may not be understood by consumers or properly disclosed. As this is potentially a Consumer Duty issue, it can be anticipated that the regulator will follow it up vigorously. The practice of “double dipping” has raised concerns with the FCA and firms have been told to cease this.
In the letter, the FCA emphasises that where it refers to cash balances, this includes client money balances for which firms have given their clients written notice to retain interest under CASS 7.11.32R, as well as balances held on deposit via mandates and contractual arrangements. It also points out that the concerns identified in the letter relate only to firms’ treatment of cash balances held for retail clients and not to firms’ arrangements with institutional or professional clients. The letter is also generally not relevant to ad hoc arrangements concerning interest (for example, with ultra-high net worth customers).
Firms will need to make any changes to their arrangements by the 29th February 2024.
How can we help you?
Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as-and-when, our team of specialists can serve as your right hand in meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.
Are you looking for help with your cash balance or client money procedures, or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.