WIREDGOV

The Financial Services Authority (FSA) will begin regulating banks’ and building societies’ day-to-day contact with their customers from 1 November 2009, covering everything from direct debits, payments, instant access and savings accounts through to unauthorised transactions and notification of interest rate changes.

This new framework will deliver wide-ranging benefits for consumers, including:

Getting information up front

Banks will have to provide prospective customers with full information on the service or product that interests them.  Previously customers only received limited information up front, with the remainder following once they had signed up to the service or product.  The change in approach will let consumers make more informed decisions.

Advance notification of changes

Banks and building societies must provide advance notice of changes to key terms and conditions.  For current and instant access accounts, they will have to give customers at least two months’ prior notice of any disadvantageous interest rate changes (except if the account explicitly ‘tracks’ a reference rate; e.g. 2% above the Bank of England Base Rate or the change is an explicit part of the contract).

Unauthorised transactions

Where a customer claims that an unauthorised transaction has taken place, the bank must refund the amount unless they can show some good reason why they need to investigate the claim.

Giving value when money is received

For current and instant access accounts, consumers will now begin receiving interest on money transferred into their account from the moment that the bank receives the funds.  This is referred to as giving value, and will be extended to all accounts from 1 February 2010.

Unexpected sums

If a debit is made from a customer’s credit or debit card, or indeed a direct debit, and it is more than they could reasonably have expected, the entire amount must be refunded by the bank unless they can provide evidence to justify refusing the refund.  They must do so within 10 days.   

Commenting on these reforms, Dan Waters, the FSA’s director of conduct risk, said:

"From the 1 November there will be specific standards covering many aspects of everyday banking transactions that have been major concerns for customers.

"New regulations will put banking customers in the driving seat by setting down clear standards that people can expect from their institution, like speeding up payments between accounts, adequate notice of changes in terms and conditions, and smoothing the procedure for querying an unauthorised or unexpected transaction.

"If firms fall short of these standards or fail to treat their customers fairly, the FSA will take action."

From 1 November 2009 the FSA will also regulate money remitters - firms that transmit money across the world.  For the first time their customers will have the protection of the Financial Ombudsman Service.

Other benefits for customers of money remitters:

• Remitters will have to provide more information to customers before they commit to using their services - for example how long the transfer will take, how much it will cost, details of any applicable exchange rate and if they are FSA regulated.

• Where transfers are made within the European Economic Area, firms will have to clear payments more quickly – once remitters have received money from the customer they will need to ensure the payee receives it the following business day (although until January 2012 as long as the customer agrees this can be extended to the third business day). 

Areas of retail banking which fall outside the FSA’s remit, such as overdrafts and credit card lending, will continue to be regulated by the Office of Fair Trading under the Consumer Credit Act.

Notes for editors

1. The Banking Conduct of Business Policy Statement.
2. Payment Services Regulations.
3. New guides for consumers on bank accounts and credit cards are available on Moneymadeclear.
4. Money Remitters that began business after 25 December 2007 must be either authorised or registered with the FSA from 1 November 2009.  Those who began business before this date have longer to become authorised or registered, but all businesses providing payment services must comply with the conduct of business regulations.
5. The FSA will be responsible for regulating most payment transactions (such as paying money into a current account) as a result of the Payment Services Regulations (PSRs) - European legislation which will harmonise the rules and standards applied to most payment transactions across the European Union. 
6. At the same time, the FSA’s new banking conduct of business (BCOBS) rules will come into effect, meaning the FSA will now oversee how banks interact with and treat their customers (this is currently governed through self-regulation via the Banking Code Standards Board).  
7. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.