FCA signals ‘data-focused’ approach to protecting access to cash in UK

The FCA has published its approach to its use of the new powers given to it by the government to ensure reasonable provision of cash access services in the UK. Although it will have broad rule making powers, the financial services regulator showed that it would use its rules to focus banks and building societies’ efforts on local areas where deficiencies in cash access are likely to have a significant impact.

As trailed in the FCA’s statement, banks, building societies and other cash access services providers can be expected to conduct assessments of cash access before significant events such as closure of a branch or removal of an ATM, as well as gather information on cash access from a range of bodies including the Post Office.

Communities will be able to request an assessment for their areas, and any gaps identified by an assessment showing significant impact on access to cash will need to be filled by firms designated by HM Treasury. The FCA is also likely to require firms to have flexibility in the type of service offered, which could include shared services in a banking hub.

The FCA unveiled its approach following HM Treasury’s policy statement on access to cash. The Treasury stated that reasonable access means access to free services, not paid for services, and that coverage of services should be maintained at current levels. This means 95% of the population being able to access cash within one mile and 99% of the population being able to access cash within three miles.

While confirming that the move towards digital payments has accelerated rapidly in recent years, the FCA recognises that cash is still vital for some consumers in the UK. However, it emphasised that its new powers are about access to cash and not acceptance of cash. These powers are focussed on the narrow area of customers – whether individuals or businesses – being able to take cash out and also deposit cash into their accounts.

Broad powers and a balanced approach

The 2023 Financial Services and Markets Act requires HM Treasury to publish a policy statement on access to cash; provides it with the power to designate firms involved in the provision of cash services; and gives the FCA broad rule making powers to make any rules necessary or expedient to ensure reasonable provision of cash access services in the UK. The FCA also has investigatory powers and the powers to impose public censure or financial penalties.

The FCA’s new powers are very broad and made increasingly so by the fact that HM Treasury is not limited to designating firms which are already FCA authorised. The Treasury may designate “relevant current account providers” such as all banks and building societies, but expressly may not designate credit unions and friendly societies. The Treasury may also designate an operator of cash access co-ordination arrangements where one of the participants in the arrangements provides current accounts – covering, for example, the LINK network. Once designated the firm must comply with FCA rules and directions made under the 2023 Act.

The Treasury’s ability to designate non-authorised firms means that the FCA for the first time has rule-making powers over firms it does not directly regulate. 

However, the indications given by the FCA in its statement suggested a fairly cautious and balanced stance in line with the regulator’s general approach, which is focused on data. Designated firms under the FCA’s anticipated rules will be expected to prepare an assessment of the reasonableness of cash provision when significant changes in local access occur or are proposed. This assessment will then form the basis for decisions on any supplemental provision. 

Although the rules specifying what the assessment must involve are yet to be announced, it is clear that assessments are likely to involve additional costs for designated firms. The cost of assessments could be substantial, but equally assessments will need to be sufficiently robust for the FCA and HM Treasury to have confidence in any conclusions reached about the adequacy of access to cash in any particular area.

Main areas of concern

The rules around the ability for communities to request an access to cash assessment will be a main area of concern for designated firms. To address their concerns, the FCA’s rules will need to consider the criteria for requesting an assessment, including the frequency of requests that can be made. In addition, firms are likely to want to know what the potential consequences are if a requesting community does not like the outcome of an assessment.

The FCA already operates a very sophisticated and detailed set of rules in its handbook. It remains to be seen how much these new rules draw on concepts the FCA has already developed in its regulation of financial products and services, in particular around customer outcomes and fair treatment.