The UK’s high street banks could have been forgiven for hoping for a quieter 2024 after facing regulatory and political pressure to ensure that customers got a fair rate on savings products last year.
Following pressure from the Treasury Committee, the Financial Conduct Authority (FCA) intervened over the summer, prompting high street banks to offer better rates.
All over? Not exactly.
Speaking to City A.M., Harriett Baldwin, chair of the influential group of MPs, said “we will be going through the results with a fine tooth comb to see how much of that net interest margin they’re passing on to our constituents”.
“We thought it was absolutely wrong every time the Bank of England raised the base rate, you would get a call from your mortgage provider to say your rates are going up. But if you had savings in the bank, you weren’t seeing any movement at all in your savings rate,” Baldwin said.
According to the Financial Conduct Authority (FCA), the largest nine banks had only passed through 28 per cent of the base rate rise to easy access deposits between January 2022 and May 2023, although better deals were available on fixed-term deposits.
Following the Committee’s pressure, regulators pushed lenders to offer savers a fair rate on easy access accounts. Consumers increasingly started shopping around too, looking for the best deals available.
In the final quarter of last year, the Current Account Switch Service saw its busiest quarter since its launch back in 2013.
Changing customer behaviour and regulatory pressure has started to hit banks’ profitability. Analysts have warned that banks will face margin pressure in the coming year as customers shop around for better deals. Just this morning Santander reported that interest income was down £56m year-on-year.
Speaking to City A.M. last week David Postings, chief executive of UK Finance, said the hit to profitability had impacted lenders’ attractiveness to international investors.
Baldwin was unmoved. “I’m going to have to get a smaller violin,” she said.
A UK Finance spokesperson said: “Savings rates increased significantly over the course of last year and there are a lot of good products available. We always encourage people to shop around for the product and interest rate that is suited to their needs”.
Baldwin also took aim at the pace of regulatory changes in financial services. The government announced a suite of changes in its Edinburgh Reforms package at the end of 2022 with the aim of reinvigorating the City, but Baldwin said “progress has been quite slow”.
She described the package as a “damp squib” last year, although she stressed there were “some important reforms in there”.
On the whole Baldwin supported the package, but her concern was the pace of change. The regulators could “absolutely” be moving faster, Baldwin said.
“Sometimes the regulators themselves don’t agree on the direction of travel they’ve been asked to go on by the government. They will slowly, slowly, slowly drag their feet and implement these things as slowly as possible, hoping we’ll all be gone and they can deal with someone else,” she claimed.
Focusing on the Payment Systems Regulator (PSR), who appeared before the Committee on Tuesday, she said the regulator was dragging its feet on introducing new fraud protections for consumers.
“We couldn’t believe how slowly they’re going on these things…a lot of the time there will be lots of lobbying by those being regulated to slow things down”.
A PSR spokesperson said: “We are driving forward a number of significant, complex pieces of work as quickly and effectively as we can to improve payments for everyone. This year will see the delivery of big changes we’ve been working on, including world-first consumer protections against APP scams going live in October.”