On 14 April 2021, the FCA and PRA published a joint ‘Dear CEO’ letter to banks and building societies (deposit-takers) on the risks of using online deposit aggregators (platforms) to obtain deposits.
This follows recent rapid growth in platforms offering savings products from different providers. While deposit-taking is a regulated activity, some platforms may fall outside the regulatory perimeter. Further, platforms adopt different models, some holding deposits on trust on customers’ behalf, others through direct relationships between clients and deposit-takers.
The letter addresses both conduct and prudential issues.
The regulators are concerned that platform customers may not fully understand their relationship with deposit-takers, or how their rights under the Financial Services Compensation Scheme (FSCS) may be affected by the underlying arrangements.
Accordingly, the letter reminds deposit-takers that they remain responsible for platforms’ promotion of their products and for ensuring this is clear, fair and not misleading. This extends to information about the FSCS.
From a prudential perspective, the letter warns deposit-takers that they must consider their use of aggregators in resolution planning. In particular, they may need to plan ahead with platforms to ensure eligibility criteria are met and relevant information is available.
The letter also points out that for smaller deposit-takers, even if the underlying client base is diverse, the flow of deposits may be correlated with platform relationships. This affects liquidity risk management and funding needs.
The FCA and PRA recognise the benefits platforms can bring consumers. However, they are also clear that regulatory objectives must not be compromised by new business models.
Of note is the regulators’ statement that they may ask deposit takers to explain actions taken in response to the letter. This in our view, is the precursor to a thematic or other potentially more intrusive review in the near future.
Deposit-takers must now begin to review all aspects of their platform driven deposit-taking arrangements with a particular focus on the matters outlined in this letter.
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