UK watchdog summons bank chiefs to tackle accusations of ‘profiteering’

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The UK’s financial watchdog has summoned bank chief executives to address concerns that savings rates are lagging behind the surging cost of mortgages.

Top bankers at HSBC, NatWest, Lloyds and Barclays are expected to attend a meeting at the Financial Conduct Authority on Thursday amid accusations they are profiteering from rising interest rates, according to people familiar with the matter.

The Bank of England raised rates to 5 per cent last month, its 13th consecutive rise in a protracted battle with high inflation. While the average rate on a two-year fixed rate mortgage has leapt to 6.42 per cent, according to Moneyfacts, the average rate on an easy access savings account is only 2.43 per cent, with many large banks offering much lower levels.

The FCA and the executives are planning to discuss the pricing of cash savings and how banks communicate with their customers on rates, according to people familiar with the agenda. The meeting could result in a savings “charter” or set of commitments, the people said.

“We do think there is more value that can be provided to consumers, we are not happy with some of the lower savings rates we see, and we want banks to be supporting customers . . . and people to be able to make informed choices,” said one person familiar with the FCA’s position.

However, some of those due to attend the meeting, which also includes smaller lenders, warned that the FCA intervention was a regulatory over-reach. “The worry is you end up in a situation where you have regulators trying to dictate price — that is a dangerous place to be,” said one chief executive.

Another senior banker noted that lenders had signed up to a “mortgage charter” last week in a move orchestrated by the Treasury to help homeowners with the sharply rising cost of borrowing. “It now looks like they’re considering something similar on savings,” this person said. “They don’t want to be in a market setting terms. Then it suddenly becomes a regulated market.”

Senior politicians have sounded the alarm over savings rates as inflation remains high. The House of Commons Treasury select committee on Monday wrote to the chief executives of the big four banks, accusing them of “blatant profiteering” by “squeezing higher profits from their loyal savings customers”.

The Consumer Duty, which comes into force at the end of July and mandates financial services firms to deliver good outcomes for their customers, gives the regulator a new basis on which to justify action if they believe banks are behaving unfairly by keeping rates low.

Current accounts, which tend to offer lower rates compared with savings products, could also come under scrutiny at the meeting, another banker said.

John Cronin, analyst at Goodbody, said banks were likely to focus on the higher fixed-rate savings offers to deflect from criticism of easy access rates.

“We’ll probably see some movement — we’ve already started to see it, as is typical of these situations where they do start moving savings rates in advance of the showdown,” he added.

The FCA has expressed concerns about the savings market before and put forward proposals for banks to make their interest rates simpler and more transparent in January 2020, but the work has been on pause since the pandemic.

The FCA declined to comment on the meeting specifically and said it would report “by the end of the month on how well the cash savings market is supporting savers”.

It added: “This includes requiring the largest banks and building societies to explain the pace and extent of their pass through of interest rates, and how they are proactively supporting customers to switch to suitable high interest rate products.”

Barclays, Lloyds, HSBC and NatWest declined to comment.