Customers should get a better deal, the FSA says
The Financial Services Authority (FSA) has taken over regulation of the way banks treat their customers.
Communications with account holders will now have to be fair, clear and not misleading.
The FSA believes banks have been generating too many complaints about poor service and that the old system of self-regulation was not good enough.
Customers will now receive more comprehensive information and banks could be fined if they break the rules.
New regulations put banking customers "in the driving seat" by setting down clear standards that people can expect from their institution, said Dan Waters, the FSA's director of conduct risk.
These include things like speeding up payments between accounts, adequate notice of changes in terms and conditions, and smoothing the procedure for querying an unauthorised or unexpected transaction.
"If firms fall short of these standards or fail to treat their customers fairly, the FSA will take action," he added.
Previously, banks regulated themselves through a body called the Banking Code Standards Board (BCSB) which, crucially, did not have the power to levy fines for any breaches of its rules.
The new rules cover the day-to-day handling by banks and building societies of their customers, though not when they have unsecured loans, overdrafts or credit cards - those are still regulated by the Office of Fair Trading (OFT).
The FSA's rules cover the savings and instant access accounts of bank customers, notification of interest rate changes, unauthorised transactions, and direct debit payments.
The regulator said this will ensure, among other things, that customers:
• received full information on services and polices before they signed up for them, not just afterwards
• would be told well in advance of any changes to the terms and conditions of their accounts, such as disadvantageous changes to interest rates
• would be refunded money lost through an unauthorised transaction, unless there is a good reason to investigate the situation
• would be credited with interest on current and instant access accounts as soon as money is received by a bank.
Ray Cox, QC, a leading banking barrister, said the new rules - outlined in the FSA's Banking Code of Business - represented an important change for the banks.
"The big thing is a requirement of overall fairness, which the banks had always resisted," he said.
"They had more detailed rules which they said amounted to fairness."
'Big psychological shift'
The changes have received the backing of the British Bankers' Association (BBA).
"UK banks have supported statutory regulation so the move of the old Banking Code to the Financial Services Authority is something we are behind," it said.
"The British Bankers' Association, the Building Societies Association and the UK Cards Association will now sponsor a refocused industry watchdog, the Lending Standards Board, which will oversee the operation of new industry standards - the Lending Code - which covers the credit and debt elements of the old Banking Code. "
Earlier this month, UK banks agreed with the OFT that they would, by 2011, make their current account charges clearer and make it easier for customers to switch accounts.
These changes will include an annual summary of account charges, and will make it easier for people to switch direct debit payments from an old account to a new one.
Mr Cox said the new rules should bring about a big change in attitude by banks.
"Banks didn't have to worry that their FSA designated regulator would be on the phone to them about their charges," he said.
"This will lead to a big psychological shift in banks as they will know the regulator is taking a close interest."