FCA keeps platform cash accounts in sights

Source: Money Marketing Katey Pigden 2020-08-14

The FCA continues to keep platform cash accounts in its sights and has urged firms to consider returning money to clients during the coronavirus crisis.

It has often shown concern about consumers holding large amounts of cash for a lengthy period and whether they understand the risks associated with doing so.

In a Dear CEO letter, dated yesterday, sent to firms that offer a non-discretionary investment service, the FCA said it expects firms to act to prevent harm to clients.

Executive director of supervision – investment, wholesale and specialists division Megan Butler, wrote: “We are aware that clients may have rebalanced their portfolios to mitigate volatility during the coronavirus pandemic. As a result, a number of firms who hold client money have reported an increase in client money balances – in some cases significantly so – in their reporting from January to June 2020.”

She added: “Your firm’s relevant senior manager should consider whether the firm needs to hold client money balances which are unlikely to be reinvested, or whether it would be in your clients’ better interests to place these balances directly with their own current or savings account providers. “We consider it good practice in this period for firms to communicate with clients about increased client money balances to ascertain whether these should be returned to them or continue to be held by the firm to facilitate further investment in the short term.

“In line with the above, if it is in clients’ better interests during this period, we expect firms to return client money balances which are unlikely to be reinvested in the short term. The FCA will continue to review client money balances and follow up with firms that report significantly increased balances.”

Hargreaves Lansdown’s recent results showed the firm’s revenue on cash (net interest earned on client money) stood at £91.1m at the end of June 2020, up from £73.2m last year.

Source: Hargreaves Lansdown financial results

In the regulators Platform Market Study, it found that larger cash balances accrued on direct to consumer platforms compared with adviser platforms, representing 8.8 per cent and 3.9 per cent of assets under administration respectively.

A source from a major platform tells Money Marketing: “Ever since interest rates fell to record low levels following the financial crisis of 2008 savers have been the ones to suffer and miss out.

“Ultimately this applies to those who invest too but decide to leave money in cash. While for some it might be an active asset allocation decision, for others they might not be aware of the levels of cash they are holding, and they will almost certainly be unaware that their provider might be earning the interest on it instead of them and failing to pass it on.

“Providers should be communicating with customers who have high levels of cash in their accounts, but there is a clear conflict of interest when they can simply earn interest on money that is not theirs.

“The FCA has in the past made clear its concerns around this issue and people not necessarily getting value for money. With inflation continuing to outstrip returns on cash, this money is simply going to be eroded over the long-term. Perhaps given the current situation, now might be a good time for the FCA to readdress this issue and ensure more money is returned to the consumer at a time when they will need it most.”

While some platforms have made significant sums on cash holdings other pass it on to customers in full.

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FCA keeps platform cash accounts in sights

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