On 14 April 2021, the FCA published a Dear CEO letter that highlights the risks associated with the increasing volumes of deposits that are placed with banks and building societies (firms) via deposit aggregators and how to mitigate them. The FCA also outlines some of the key responsibilities that firms will be held accountable for.
Deposit aggregators are providers of intermediary services who sit between savings account providers and retail customers. Deposit aggregators operate under several models where their customers also become direct customers of the firm (‘direct models’), or where the deposit aggregator holds the deposit accounts on trust for their customers who therefore do not become the firm’s direct customers (’trust models’).
The FCA warns that customers who place their deposits via a deposit aggregator may not fully understand how these relationships work or, in trust models, how they can differ from a direct-depositor relationship with firms. The Dear CEO letter also notes that where a deposit aggregator advertises and undertakes financial promotions as a firm’s agent, it is the firm’s responsibility as principal to comply with applicable rules on financial promotions in the FCA Handbook, notably BCOBS 2. The FCA expects firms to be comfortable with the detail of any customer-facing messages in promotions that are subject to FCA rules.
The FCA reminds firms that where they provide information on their website regarding the Financial Services Compensation Scheme (FSCS), it may be preferable for messages to directly link to the FSCS website, rather than attempting to summarise or explain the FSCS process. The FCA suggests that any references to timelines should mirror FSCS’ communications on pay-out timelines (within 7 days or within 3 months).
Resolution and liquidity risk
The FCA also reminds firms that they should be mindful of their obligations to prepare for resolution. Firms may need to plan ahead with deposit aggregators to ensure eligible claimant criteria are met and client-specific information is available to ensure a swift pay-out. There is a risk for deposit-takers, notably for small and medium-sized firms, that deposits from a deposit aggregator may represent a significant portion of their balance sheet and present a concentrated liquidity risk. Firms should factor this into their management of liquidity risk and funding needs.
The FCA expects the firm’s senior management to have appropriate oversight over its relationships with deposit aggregators.
In terms of next steps the FCA states that it expects firms to:
- Have discussions at the appropriate level and consider addressing any aspects that are directly relevant to them and their business model.
- Consider the extent to which their deposit book relies on business sourced via deposit aggregators and whether this requires any action to consider measures to achieve a faster customer repayment by the FSCS in the event of need. The FCA welcomes any views on this matter.
- Look at widening the information provided to the FSCS, FCA or PRA to include both information about the deposit aggregators used by the firm and the level of deposits coming via them and whether the firm uses a ‘direct’ or ‘trust’ model which will support swift pay-out.
- Consider the level of transparency regulated firms have regarding the beneficial owners of deposits sourced from deposit aggregators.