The Financial Conduct Authority has written to investment platforms and SIPP operators setting out its concerns on the way they deal with interest earned on customers’ cash balances.
The city watchdog has warned that it will intervene if firms cannot demonstrate they are offering customers fair value.
It said the amount of interest earned by some firms has increased as rates have risen.
In a recent FCA survey of 42 firms, the majority said they retain some of the interest earned on cash balances which may not reasonably reflect the cost to firms of managing the cash. In addition, many also charge a fee to customers for the cash they hold, known as ‘double dipping.’
The FCA said it is concerned that these practices may not be providing fair value to customers and may not be understood by consumers or properly disclosed. It has called for the practice of ‘double dipping’ to cease.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Rising rates mean greater returns on cash. Investment platforms and SIPP operators need now to ensure how much of the interest they retain and for those who are double dipping, how much they’re charging customers holding cash, results in fair value. If they cannot make that case, they need to make changes. If they don’t, we’ll intervene.”
