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Home | News & events | Legal updates | Banking Conduct of Business Overview
Banking Conduct of Business Overview
01 September 2009
The conduct of retail banking business in the UK is regulated largely by the Banking Code and the Business Banking Code, with the Financial Services Authority (FSA) only imposing limited conduct of business requirements on deposit taking business.
The Codes, monitored and enforced by the Banking Code Standards Board (BCSB), are voluntary, but once a Code is subscribed to, subscribers are committed to complying with it.
For firms subscribing to the Codes, the FSA has arranged for the BCSB to monitor compliance with most of the applicable FSA Conduct of Business Sourcebook (COBS) rules on its behalf.
Consultation Paper 08/19
In 2008, the FSA produced Consultation Paper 08/19, which proposed a new framework to regulate the way banks and building societies treat retail customers, and which advocated a move away from the Codes’ voluntary regulation for the following key reasons:
- it is increasingly anomalous that the FSA does not regulate retail consumers’ core financial services relationship, especially as it about to regulate payment services
- there are some gaps in the Codes’ content, including no overarching fairness objective equal to the FSA’s Principle 6 (a firm must pay due regard to the interests of its customers and treat them fairly)
- BCSB’s regulatory approach to supervision and enforcement is described as less principles-based and transparent than the FSA’s. Deterrence may also be limited by the fact that the BCSB does not have the power to fine.
Policy Statement 09/6
In light of the responses received, the FSA published Policy Statement 09/6 in April 2009, confirming it will take over all retail banking conduct regulation for deposit taking and payment services on 1 November 2009.
The key aspects of the new framework set out in the Policy Statement are:
- full application of the FSA’s Principles for Businesses to the regulated activities of accepting deposits and issuing e-money (to the extent compatible with European law)
- some new high-level rules applying to retail banking services outside the scope of the Payment Services Directive (PSD) in a short Banking Conduct of Business (BCOBS) sourcebook
- transfer of the FSA existing COBS rules and guidance applying to deposit taking to BCOBS
- monitoring and enforcement by the FSA to be integrated into the wider risk-based approach to the supervision of relevant firms and groups
The Banking and Payment Services Conduct Regime
Banks and building societies will be subject to both the Payment Services Regulations (PSRs) and the BCOBS requirements – together the ‘banking and payment services (BPS) conduct regime’.
Broadly, where a retail banking service is not a payment service within the meaning of the PSRs (for example, the drawing of a cheque) BCOBS applies in full. Where a retail banking service is a payment service under the PSRs, BCOBS has a limited application.
Who does BCOBS apply to and what rules are covered?
BCOBS applies to firms who conduct the regulated activity of accepting deposits for ‘banking customers’ from an establishment in the UK. Banking customers include ‘consumers’ – people acting outside of their trade or profession – and ‘micro-enterprises’ – businesses employing fewer than 10 people and with an annual turnover of no more than €2m.
BCOBS is a ‘short’ rulebook in comparison to other FSA rulebooks and applies to ‘retail banking services’ (a proposed new defined term covering accepting deposits – including structured deposits – and providing services in relation to deposits). BCOBS will contain:
- new high-level outcome-focused rules applying to retail banking services for consumers and small businesses outside the scope of the PSD. These new rules will primarily relate to information to be provided to banking customers (pre and post-sale) which may be more extensive than for some accounts at present; and
- the existing COBS rules and guidance that apply to deposit-taking activities and which are currently largely monitored by the BCSB where firms subscribe to the Codes.
In particular, BCOBS includes rules and guidance on:
- communications with banking customers and financial promotions
- distance communications, including the requirements of the Distance Marketing Directive (DMD) and the e-commerce Directive
- information to be communicated to banking customers, including appropriate information and statements of account
- post-sale requirements on prompt, efficient and fair service, moving accounts, and lost and dormant accounts
- cancellation rights
So, banks can expect a busy – and expensive – time ahead, as they make their client-facing operations comply with the BPS conduct regime.
© Shoosmiths. This page is for general information: it is not legal advice. Please read our full terms and conditions for details of the disclaimers and exclusions which apply.
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Paul Estlin
Associate
T: 03700 86 5667
I: +03700 86 5667
E: paul.estlin@shoosmiths.co.uk