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Understanding double dipping and meeting Consumer Duty expectations

12 December 2023

The Financial Conduct Authority (FCA) has today (12/12/2023) issued a Dear CEO letter to investment platforms and SIPP operators highlighting their concerns around the retention of interest of customers' cash balances and the practice of "double dipping".

The "double dipping" practice, commonly observed among investment platforms and SIPP operators, involves retaining a portion of the interest earned on customer cash while also charging a platform fee on the same cash. The FCA has expressed serious concerns, emphasising the need for firms to align their actions with the Consumer Duty and ensure fair treatment of customers.

By now, firms should, be very familiar with the expectation to deliver good outcomes, particularly in terms of price and value, and consumer understanding. However, with rising interest rates many firms have grappled with how best to treat interest earned on customers' cash. The Dear CEO letter outlines several steps firms should take now to ensure their actions meet these expectations.

First and foremost, firms should review their approach to the retention of interest under the Consumer Duty, making adjustments where necessary. The FCA want to see an end to the practice of double dipping and firms should refrain from charging fees for holding cash while simultaneously retaining interest earned.

Firms must also be incorporating the retention of interest into their Fair Value Assessments, considering the actual costs of managing the cash, and demonstrating how the retention benefits the customer. 

Transparency is key, and firms should clearly communicate to consumers the reasons behind the retention of interest and how it relates to the cost of providing cash management services. Updating terms and conditions to reflect the approach is crucial. Clear and accurate documentation and communications are essential to ensure customers understand how their cash balances are being treated.
The practice of double dipping was always going to raise an eyebrow in the Consumer Duty era, but prior to the recent interest rate rises was considered justifiable by firms. Firms have until the 31st January 2024 to communicate the changes they have made (or will be making) to the FCA. The FCA expect all changes to have been implemented by 29th February 2024.

With such a short timeframe in which to act, DWF, as a leading legal service provider, can significantly benefit your firm by conducting thorough reviews of charging structures, client disclosures and assisting with fair value assessments. If you think your firm will benefit from our expertise, please get in touch. 

Further Reading