FSA may regulate bank behaviour

The FSA wants more control over day-to-day banking

The Financial Services Authority (FSA) says it wants to regulate the way banks treat their High Street customers.

Currently, banks regulate themselves through the Banking Code Standards Board (BCSB).

In a consultation document, the FSA says the present set-up may be inadequate because the BCSB "does not have the power to fine."

The current banking code is supposed to ensure banks "provide a fair deal to personal and small business customers."

"Retail banking is going through a period of rapid change and regulation needs to keep pace with this change," said Jon Pain, the FSA's managing director of retail markets.

"We believe that in order to ensure that the regulatory model is fit to meet these challenges, now and in the future, the FSA should regulate the wider aspects of everyday banking for all consumers."

Complaints

The banking code was originally devised in 1992 and since 1999 has been enforced by the BCSB.

Its current version was revised in March this year.

It sets down guidelines for the way banks deal with account holders and covers the way they market and operate their current and savings accounts.

It also covers the way accounts can be opened and closed, and the information that should be given to customers about changes to their accounts.

This includes the way changes to interest rates are communicated, as well as basic information about terms and conditions.

The code also governs the way banks handle complaints or deal with customers who have financial problems.

In its consultation document the FSA said it has noted an increase in the number of complaints being made about bank accounts.

"While these involve only a small percentage of total users, minor regulatory and market failures can add up to significant cumulative numbers," it said.

It added that customers might suffer because the FSA was unable to enforce one of its main principles that "a firm must pay due regard to the interests of its customers and treat them fairly."

Deterrence

The FSA said the scope of the current code was "broadly correct" and said the BCSB enforced it effectively.

But the FSA suggested it wanted the code to be more of a deterrent to bad behaviour.

"Though the threat of publicity and resulting reputational damage is seen by firms as a significant disciplinary tool, we believe that the BCSB's deterrence is limited by the absence of a fining power and the Board's relatively low media profile," the FSA said.

Two areas that the FSA is not proposing to regulate are the way in which banks provide unsecured loans and credit cards, for which the Office of Fair Trading (OFT) is already responsible.

Its plans would apply not only to banks but also to building societies and credit unions.