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New rules to help maintain cash access set out by FCA

New rules requiring banks and building societies to assess and plug gaps in local cash provision have been proposed by the City regulator.

The Financial Conduct Authority (FCA) has set out the plans to help maintain reasonable access to cash for people and businesses across the UK.

The FCA said its new powers will not prevent bank branches from closing – but the rules will have an impact where branches are a key local source of cash.

The plans follow new powers granted to the regulator by the Financial Services and Markets Act 2023.

The rules will require banks and building societies designated by the Government to assess and fill gaps, or potential gaps, in cash access provision that significantly impact consumers and businesses.

Assessments will need to take into account local factors, such as demographics and transport. Where firms identify gaps, they will need to act to address these needs, the regulator said.

Concerns have been raised over the years that “cash deserts” could be created by bank branch closures and difficulties accessing free ATMs.

The FCA’s consultation document said: “Our data suggests that in the two years to (the first quarter of) 2023, 1,391 bank and building society branches closed, as did 2,176 free-to-use ATMs.”

The FCA also wants to prevent people from facing unreasonable costs to access their money, which could be through charges, travel costs or time.

Sheldon Mills, executive director of consumers and competition at the FCA said: “We know that, while there is an increasing shift to digital payments, over three million consumers still rely on cash – particularly people who may be vulnerable – as well as many small businesses. It’s important that we support consumers impacted by recent innovations.

“These proposals set out how banks and building societies will need to assess and plug gaps in local cash provision. This will help manage the pace of change and ensure that people can continue to access cash if they need it.”

An ATM
95.1% of the UK population were within one mile of a free-to-use cash withdrawal point in the first quarter of 2023 (Gareth Fuller/PA)

In the first quarter of 2023, 95.1% of the UK population were within one mile of a free-to-use cash withdrawal point, such as cash machines or Post Office branches, with 99.7% of the UK population being within three miles.

The availability of cash access services can impact local communities, economies and high streets, and so it is important to meet local needs, which may change over time, the regulator said.

Under the proposals, designated firms will be required to:

– Undertake cash access assessments when changes are being made to cash access services, to understand whether additional services are required to meet local gaps.

– Respond to requests from local residents, community organisations and representatives to consider, assess and plug gaps.

– Deliver reasonable additional cash services to fill gaps in provision where assessments show that there is or will be a significant local gap.

– Ensure they do not close cash facilities, including bank branches, until any additional cash services identified are available.

The FCA said the rules will work in harmony with its existing guidance on bank branch closures.

The acceptance or non-acceptance of cash by retailers is not being looked at by the consultation. The FCA said that existing law allows retailers to decide whether to accept cash or not – so it cannot require them to do so.

Speaking about the impact of the new rules, David Geale, director of retail banking at the FCA, told the PA news agency that, while there are currently some voluntary arrangements in place, “What this does, is it formalises that expectation and takes it wider and deeper.”

Mr Geale said that while the FCA does not have powers to force retailers to accept cash, “If we can protect reasonable access for people and businesses, that enables people to use cash more easily. If we can achieve that then businesses may be more willing to continue to take cash.

“So I think it’s about creating the right conditions, and that is something that our rules will help with.”

He also added that while it is a commercial decision for banks whether to keep branches open, “What our rules do is make sure that, even where they do close branches, they are still providing reasonable access to cash withdrawal and deposit services for notes and coins for the communities that they serve.

“And when they do those assessments, they’ll have to take into account various factors that determine need in each area.”

Asked about what factors could be considered, Mr Geale told PA: “We would expect firms to consider the current use of cash services, we’d expect them to look at the demographics of the area, so if there’s a particularly high proportion of vulnerable customers, for example, who may be using those services, the need for local services may be greater. Similarly, we expect them to consider the suitability of any alternatives and the impact of time and cost if people are expected to travel.

“But also things like, how digitally enabled their customers may be and the services available in specific areas, so it’s no use saying you can rely on digital services if you are in an areas with poor wifi, for example. They’ve got to take these things into account and produce an objective assessment of whether there is a significant gap.

“And then if there is, they’ll have to plug that gap with something that is suitable. That may not be a bank branch, it could be a post office, it could be a banking hub, it could be automated services, it could be mobile branches, it could be any one of a number of things. We are keen to see ongoing innovation in service alternatives to best meet the needs of customers.”

The consultation will remain open until February 8 and the FCA expects to finalise the rules by the third quarter of 2024.

The volume of payments in the UK that do not involve cash surged from around 46% to 86% in the decade to 2022, according to the FCA’s consultation document.

This rise has been driven by new ways to pay and changes in customer behaviour, with the coronavirus pandemic also impacting cash use.

However, the FCA’s Financial Lives 2022 survey indicated that 3.1 million adults (6%) had used cash to pay for everything or most things over the 12 months to May 2022.

In England and Wales the proportion was 5%, in Scotland it was 7% and in Northern Ireland it was 13%.

John Howells, chief executive of cash access and ATM network Link, said: “This is a very detailed and comprehensive set of rules that puts Link’s work on a statutory basis.

“As part of the consultation, the FCA say that any location that is set to lose its final branch must have facilities in place before that branch shuts. This will strengthen provision for small businesses and Link will need to look again at locations where the community is supported by retail-only banks such as Nationwide.

“This is a good job by the FCA with real teeth.”

Jenny Ross, Which? Money editor, said: “Which? led the campaign to maintain free access to cash for consumers who need it, so it’s good to see the FCA setting out how it proposes to carry out its new responsibilities.”

Post Office CEO, Nick Read said: “With over £3 billion of cash handled by post offices every month, and as the operator of all existing banking hubs, Post Office’s network of more than 11,500 branches is critical to the UK’s cash infrastructure.

“In many places, post offices are already the only place where consumers can do their everyday banking. So we welcome the FCA’s consultation and look forward to working with them to ensure access to cash is protected for small businesses and communities up and down the country.”