Unwelcome disclosure: bank interest rate retention deadline?

16th April 2013

Over the past few weeks we have seen some confusion across our client-base linked to disclosure of bank account interest retained by firms as detailed in the FSA’s CP12/29 published back in November.

The consultation paper said on page 12 and reiterated in Annexe 2 point 14: http://www.fsa.gov.uk/static/pubs/cp/cp12-29.pdf  

“We will require firms to disclose…in a key features illustration, details of interest to be paid to clients on money invested within the scheme. We will also require firms to disclose, as part of ‘the appropriate charges information’, whether or not the scheme operator or the scheme trustee is retaining any interest on money held within the scheme and, if so, the amount retained. In our view, favourable interest rates obtained from banks should be used to obtain competitive advantage and benefit the consumer rather than provide a secret profit for the operator.”

Effectively the FSA will now treat the retention of interest payments, otherwise due to the consumer, like product commission – i.e. their value and impact on performance must be fully detailed in illustrations.

Within the CP the FSA noted the following feedback from the industry on this issue:

“..some respondents had strong objections to disclosing the amount of interest retained, if any. Some firms argued that calculating and disclosing these amounts will involve significant costs, breach commercial confidentiality and provide limited benefits for clients. We appreciate the challenges that will arise if firms need to alter their approach to client money. But we also consider that, to understand the charges they will be paying and how they will be paying them, consumers do need this information.”

But despite these objections, and claims from some quarters that the consumer might end up being worse off as a result of this disclosure, it is now a requirement and it must be disclosed in KFIs in the ‘effect of charges’ section of the post RDR KFI.

So we were unsure why some of the companies we have polled this week have not yet implemented the change despite the deadline going through late last week. One central reason for not getting it in place in time may simply be down to communication. This change requirement was slightly buried in a CP focused on a range of SIPP operator disclosure requirements, the most significant of which was arguably the introduction of inflation-adjustment on illustrations. Furthermore there was no further deadline confirmation in a Policy Statement. Some clearly missed it completely and others may be unclear whether this change needs to be implemented by 5th April 2013 or in time for the next tax year.