From November 2009, banks’ and building societies’ day to day relationships with their customers will be governed by new FSA rules. Additional compulsory disclosures in promotional material loom and more, as Zoe Hare reports.
Topic: Financial services
Who: Financial Services Authority
When: 24 April 2009
Where: UK
Law stated as at: 18 May 2009
What happened:
On 24 April 2009, the FSA announced plans to take over all retail banking conduct regulation for deposit taking and payment services. This will come into effect in November 2009.
The Banking Code Standards Board (the "BCSB") currently regulates in this area, governing the relationship between consumers and banks through its Banking Code and Business Banking Code. However, although the Board keeps an eye on banks and enforces the codes, the codes are voluntary.
The FSA has drafted new rules which all banks, building societies and credit unions must follow. These rules are set out in the new Banking Conduct of Business Sourcebook (the "BCOBS"). In addition to the BCOBS, the FSA has published a Policy Statement (PS09/6) which details its responses to the feedback from a previous consultation paper.
Key changes to promote transparency
The new rules will bring about some key changes intended to enhance fairness and transparency for consumers.
The most important difference for marketers is the broadening of the rules around the provision of information to customers.
Currently, a bank is obligated to provide information about the products and services offered to new customers once they have signed up. However, under the new regime this information must be given before they sign up, in other words during the advertising and marketing process.
The FSA considers that the stage when someone is considering whether to become a customer is the point at which they need the information. The FSA states in its press release that this will "help consumer to make informed and timely decisions, enabling them to both choose the best account for them, and know how to use their account most effectively."
Efficient account transfers? Whatever next?
Another key difference for consumers will be the requirement to provide an efficient service when a customer wishes to transfer accounts. The new rules set out that where a customer wants to switch accounts, it must be done without delay.
This must apply regardless of the type of account.
These new rules will work in parallel with the Payment Services Regulations (the "PSRs") which come into force on 1 November 2009. While the BCOBS is aimed at enhancing consumer protection and treating customers fairly, the PSRs (the UK level rules implementing the EU level Payment Services Directive) are designed to harmonise the standards of customer service for all payment transactions in the EU. This new combined regime will hopefully provide improved service and fairness for customers.
In its response to the FSA consultation on this proposed new regime, the Advertising Association ("AA") made a case for self-regulation. It argued that self-regulation should be possible, provided it was effective and met certain standards. The AA argued that this could be achieved, particularly through the assistance of the Advertising Standards Authority. However, the FSA rejected this approach. In its response, the FSA stated that although self-regulatory systems can work effectively in the financial services sector, the FSA believed that the proposals and subsequent implementation of the reformed regime were most appropriate and effective for retail banking conduct of business.
Why this matters:
In the current financial climate an overhaul of banking regulation which is aimed at promoting better treatment of, service to and fairness for consumers can only be regarded as beneficial.
The greater enforcement powers which the FSA has, compared to the BCSB, will act as a deterrent and increase compliance; a factor that was missing from the voluntary banking codes. In particular, the FSA has the ability to impose fines on firms for non-compliance.
From the point of view of advertising and marketing, the BCOBS includes rules and guidance on communications with bank customers and financial promotions, together with guidance on distance communications including the requirements of the Distance Marketing Directive. Banks will need to take these new rules into consideration when sending out promotional material or general communication to its customers.
Although the British Bankers Association and Building Societies Association's Code of Conduct for Advertising of Interest Bearing Accounts currently provides guidance for the sector, the BCOBS will only enhance this. The FSA has made it clear that there will be no change in the status of this Code of Conduct, stressing that it is still respected industry produced and maintained guidance. The Code of Conduct is cross referred to in the BCOBS and supplements it. Accordingly, the Code of Conduct is still a factor which must be taken into account when preparing financial promotions and other advertising material to send to customers.
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