Interest rates, CASS and Consumer Duty: A summary of the FCA’s recent Dear CEO letter

Posted: 13/12/2023 | Read time: 3 minutes


In this blog, our Product Manager and CASS expert Murray Campbell breaks down the FCA’s latest Dear CEO letter on handling interest. He explains why the FCA is taking action and sets out the steps firms need to take to meet the requirements.


The FCA has written to investment platforms and SIPP operators to express concerns around the handling of interest received on customer cash balances, including client money. It clearly sets out a series of steps firms are required to take by 29 February 2024. So firms must review the contents in detail and take action.

The CASS rules provide latitude for regulated firms to pay all, some, or none of the interest earned on client money balances back to the relevant client (CASS 7.11.33 G). Firms must notify their clients in writing if they do not intend to pass on the interest earned on client money balances (CASS 7.11.32 R).

Issues around interest are of course more prominent today because of the high interest rate environment and introduction of Consumer Duty rules. In fact, the FCA found that firms earned £74.3m in revenue in June 2023 alone.


Impact of Consumer Duty

Consumer Duty means that firms are unable to rely on clauses hidden within terms and conditions to excuse them from passing on earned interest. The Duty ensures customers receive fair value for products and services and that information is clearly disclosed by firms and understood by their clients. Following a review of the practices at 42 firms, in respect of passing on interest, the FCA identified concerns with firms meeting these obligations.


Concerns raised by the FCA

Concerns raised by the FCA include:

  • Variability in the quality of disclosures made to clients regarding the retention of interest
  • The practice of charging account fees on cash balances and retaining at least a portion of the interest received on those balances (i.e. “double-dipping”)
  • Limited examples of actions firms have taken around retaining interest as a result of Consumer Duty

Passing on interest to clients creates an operational challenge for firms. Cash is typically held across multiple agent banks with each paying a range of interest rates. This means client balances will also be spread across those arrangements and changing daily. Firms need to calculate the amounts due to each customer accurately.

Meeting these standards will require firms to:

  • Cease the practice of double-dipping
  • Review their approach to the retention of interest and ensure this provides fair value
  • Review their terms and conditions to ensure the information is provided clearly and is likely to be understood by consumers

The FCA has requested firms provide them with specific confirmations by 31 January 2024 ahead of making any required changed by 29 February 2024.


If you’re concerned about how the Dear CEO will impact you or want more information on how you can meet the requirements, contact a member of our team here.