FCA’s new powers are an important step towards maintaining reasonable provision of cash deposit and withdrawal services.
Through the Financial Services & Markets Act 2023[1], Parliament has asked the FCA to seek to ensure reasonable provision of cash deposit and withdrawal services for personal and business current accounts in the UK or part of the UK. Following the Cash Access Policy Statement published by the Government we will develop new rules to ensure that as cash access services evolve they continue to be provided on a reasonable basis.
Changes in the market
Over the past few years, we have been carefully monitoring access to cash[2]. Our current assessment is that, despite branch closures, for most people, access to cash is generally good.
As of Q2 2022, 95.1% of the UK population are within 1 mile of a free-to-use cash withdrawal point, such as cash machines, Post Office branches or bank/building society branches, and 99.7% of the UK population are within 3 miles of a free-to-use cash access point.
Nevertheless, we recognise that the shape of branch networks is changing rapidly, as the way we pay adapts too.
The volume of payments that do not involve cash in the UK has risen from around 45% a decade ago, to 85% as of 2021[3]. This change is being driven by technological advances. For example, contactless payments, banking apps and mobile wallets are increasingly popular amongst consumers of all ages, who want a faster way to pay and the convenience of not carrying cash. The Covid-19 pandemic accelerated this move towards digital payments. In March 2023, contactless payments accounted for 61% of all credit card and 75% of all debit card transactions[4].
However, while digital payments make life easier for many, cash is still vital for some consumers in the UK with 3.1 million adults (6%) using cash to pay for everything or most things in the 12 months up to May 2022[5]. Cash remains particularly important for consumers with vulnerable characteristics and many small businesses. We recognise therefore that if the pace of change is not managed sensibly, those customers reliant on cash could be significantly affected.
Our approach
Our approach will be balanced, considering the cash needs of consumers and small businesses, and the costs for firms to meet those needs and the general consumer preference for digital ways to pay.
In line with HMT’s new policy statement, we will seek to maintain a network of cash access facilities that is in keeping with the current distribution of services so that people and businesses who remain reliant on cash are able to withdraw and deposit it. We will consult on new rules in due course and ensure they work together with our existing branch closures guidance[6].
Our rules will need to be flexible to the cash needs of personal customers and SMEs in different areas, noting that needs will vary according to the demographics of the local population, and characteristics of the area, e.g., digital connectivity, geography, transport infrastructure, or number of retailers. We therefore expect to propose rules that focus designated firms’ efforts in local areas where deficiencies in cash access would be likely to have a significant impact, taking into account a number of factors. We expect those factors to include: the number and characteristics of people likely to be affected including the impact on those in vulnerable circumstances; the number of businesses which accept cash payments likely to be affected; the distance to the nearest suitable access and the costs people and businesses face to travel there.
We plan to consult on rules that will require each of the banks and building societies designated by the Government as subject to the new access to cash regime to conduct assessments of the reasonableness of cash provision when certain significant changes in local access occur or are proposed. For example, this could include a decision to close a bank branch, the closure of a post office, or the removal of an independently operated ATM. We expect these rules to also require an assessment where a community requests one.
If a firm participates in cash access arrangements operated by an independent designated body, we expect our proposed rules to allow that body to undertake assessments in place of the firm. We will encourage designated firms to participate in such arrangements. LINK currently conducts assessments when firms decide to close bank branches.
We expect the proposed rules to require a designated firm to fill gaps in provision where, broadly, assessments conclude the gap will have a significant impact and it is reasonable for the firm to provide an additional service. We also anticipate the proposed rules will provide for flexibility in the type of facility used to deliver the additional services and that firms may choose to install shared services such as banking hubs. We expect firms to be able to comply with applicable requirements including under UK Competition Law whenever coordinating with each other.
An assessment under the proposed new rules may of course identify a gap in reasonable provision which was created by a designated firm’s actions taken between now and then, and result in the firm having to fill that gap again. Firms who may be designated should bear this in mind when planning closures of cash access facilities or significant changes in provision of cash access service.
For us to monitor coverage of access to cash across the UK, we also expect to use our new powers to collect information from providers of cash access services and other entities involved in cash access services, for example the Post Office and providers of ATMs.
While our new powers are focussed on access to cash services rather than wider banking services, bank branches are relevant because of the cash access they provide. Under our Branch and ATM Closures and Conversions Guidance we already expect firms to conduct good quality analysis and, where it is reasonable for a firm to provide an alternative solution, it is expected this (or suitable interim arrangements) will be opened ahead of the closure or conversion. We plan to adopt a similar approach to access to cash in rules - if an assessment shows additional cash services should be put in place as a result of a pending closure by a designated firm, the closure must wait until those services are in place.
Alongside seeking to ensure reasonable provision of cash deposit and withdrawal services and ensuring designated firms uphold their obligations, we want our rules to continue to encourage ongoing investment in developing shared solutions. This could lead to provision of efficient and innovative digital payment solutions, alongside cash solutions, that meet evolving consumer and SME needs.
We note that the position set out in HMT’s Policy Statement, and the new powers given to us, do not extend to cash acceptance. We do not have powers to ask retailers to accept cash as payment for goods or services. Retailers are free under the existing law to decide whether or not to accept cash or to only accept digital payments.
Next steps
The Government will designate which firms our regulation of cash access will apply to and may designate co-ordination bodies. Before we make any rules or general guidance we must undertake a full consultation, including a cost benefit analysis, to seek views. We will be engaging with a variety of stakeholders including organisations representing cash users, banks and building societies, and providers of cash coordination infrastructure. It will be important that our rules are sufficiently flexible to respond to varying needs across the country, and take into account the changing needs of society.
Depending on the outcome of our consultation we currently expect any new rules will have taken effect by summer 2024. In the meantime, our new Consumer Duty came into force on 31 July 2023 setting a higher standard of protection for banking customers, including where they are impacted by branch closures and ATM conversions. PRIN 2A.1.16G to PRIN 2A.1.18G explain how our existing guidance on branch and ATM closures or conversions remains relevant to consideration of firms’ obligations under this new duty.
Firms must anticipate the foreseeable harm to their customers of any decision to close a branch or close or convert an ATM and address it before proceeding with a closure or conversion. As outlined in non-Handbook Guidance for firms on the Consumer Duty (FG22/5[7]), firms should engage with us if they are considering withdrawing or restricting access to products or services in a way that will have a significant impact on characteristics of vulnerability or on overall market supply.
We will be working with the Payment Systems Regulator (PSR), which retains oversight of LINK, the UK’s largest ATM network, to ensure the UK’s cash infrastructure remains resilient, cost-effective and accessible to meet the needs of consumers and businesses.