The harm done to longstanding savers sitting on less competitive rates is expected to have increased as interest rates have risen, according to the head of the City regulator.
Writing to the Treasury Committee, Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), said it has been “standard practice” for firms to offer more attractive rates to new savers, while leaving existing savers earning less competitive rates.
He said this has been seen in the FCA’s previous work, adding: “We expect that the harm from this practice (and the loyalty penalty faced by longstanding customers) will have increased as the base rate has risen.”
Financial firms will need to follow a new consumer duty from July 31, putting customers at the heart of what they do.
Mr Rathi said: “From July 31, when setting rates, firms must comply with the consumer duty, including acting in good faith towards, and providing fair value to, all groups of savers.”
Mr Rathi said the regulator has been monitoring the speed and extent of firms’ “pass-through” to their savings products following increases in the Bank of England base rate.
He said: “We have challenged and sought further information from some outlier firms that had made relatively small increases to their variable rate savings products in 2022 and where we saw a material time lag in pass-through to savings products relative to mortgages.
“Alongside this we are improving our data collection to further deepen our understanding of the savings market.”
Mr Rathi said the rates firms offer are commercial decisions.
He was responding to the Commons committee after it asked what analysis the financial regulator has carried out on whether banks are earning disproportionate profits by increasing rates on mortgages far quicker than on savings products.
The MPs have been questioning how major retail banks determine what proportion of interest rate rises to pass on to their savings customers.
“While it’s welcome to hear the financial regulator is monitoring this situation, we will be keeping a close eye to ensure they act on these assurances.
“Consumers should continue to shop around to get the best rates possible.
“With banks set to release their first-quarter results in the coming weeks, we will be monitoring whether firms are continuing to squeeze profits from their loyal savings customers.”