Banks and other lenders who want to shut local branches must do more to ensure consumers’ needs are being met under tougher rules laid down by the financial watchdog.
The Financial Conduct Authority (FCA) said new rules from September will mean financial lenders must respond better to avoid communities being left without access to cash.
The new powers will not prevent the closure of bank branches but give the regulator the ability to fill cash access gaps with alternatives such as banking hubs, ATMs (including deposit ATMs) and improved Post Office facilities.
The move comes as high street lenders have shut thousands of branches across the UK in recent years, leaving many towns without any local branches. The consumer group Which? said more than 6,000 bank branches had closed since 2015.
Banks argue they are simply responding to customers’ wishes and more people are using online and mobile services rather than a physical branch.
The FCA said that three million people on average still rely on cash, with lower-income households disproportionately likely to be excluded from digital services and more reliant on cash.
“Many small businesses still need somewhere to safely deposit their takings each day,” said Sheldon Mills, of the FCA.
The FCA have told banks they must better assess the needs of local communities and make sure they are responding to residents and groups that raise concerns.
The rules go further than the current, industry-run, voluntary scheme.
Where towns have been completely deserted by banks or building societies then more banking hubs are being set up. Banking hubs allow staff from several banks to share the same space, often on different days, helping to fill gaps left in the system from branch closures. More than 100 of the hubs are due to open this year, the latest of which was in Saltash, Cornwall, earlier this month.
The move was welcomed by the consumer champions Which?
Rocio Concha, Which? Director of Policy and Advocacy, said: “Which? led the campaign for these new rules, backed by legislation, which put much stronger requirements on banks and building societies to protect access to cash.
The guidance that went before was insufficient amid a wave of ATM and bank closures that left more than 30 parliamentary constituencies – covering nearly three million people – without a single branch.
“It’s encouraging that the FCA is moving forward with this plan. It must now be prepared to closely monitor how banks and building societies are behaving and step in with enforcement action if they are falling short of what is needed to maintain cash access in communities.
“Industry initiatives such as banking hubs will likely be the future of banking in lieu of shuttered branches, but their rollout remains too slow for consumers to feel their benefit. The government must deliver its commitment to open at least 350 new hubs in the coming years – and revise that total upwards if necessary.”
Adrian Roberts, the deputy chief executive of Link, which runs the ATM network and cash access scheme, said: “This regulation is good news for consumers. Much has been achieved over the past couple of years, especially with the rollout of banking hubs and deposit services, but crucially this makes a voluntary arrangement law.
“To date, we have recommended almost 150 banking hubs and 129 deposit services with Cash Access UK and Post Office opening new cash services on the high street every week.”
Cash Access UK is currently trialing new deposit machines which offer easy access to cash services such as withdrawals, balance enquiries, PIN management to customers of all major banks. They also offer free cash deposits to customers of Bank of Scotland, Barclays, Halifax, Lloyds, NatWest, Royal Bank of Scotland and Ulster Bank with more banks expected to be added soon.
Alice Haine, a personal finance analyst for Bestinvest by Evelyn Partners, said the new plan was a “landmark move” by the FCA.
She added: “Access to cash and the ability to use notes and coins in consumer transactions has become a particular challenge for the elderly, the less digitally capable, the unbanked and those on low incomes, who rely on cash to manage their finances.”
She said the rules will mean banks must “listen to the concerns from local communities” and offer additional cash services or keep facilities open for longer until alternative options become available.