FSA is consulting on a new framework for regulating retail banking conduct of business within its remit. Currently FSA does not have comprehensive rules governing the conduct of retail deposit-taking or electronic money business. It will only take enforcement action for conduct of business breaches where there are prudential implications. Instead, the industry has regulated itself by means of the Banking Codes. The Banking Code Standards Board has monitored and enforced compliance with these voluntary codes, to which almost all retail banks and building societies have subscribed. FSA believes the scope of the Codes to be broadly correct and the monitoring by the BCSB to be effective but has some concerns about the present arrangements:

  • the current approach is less principles-based and transparent than FSA’s; 
  • deterrence is hindered by the BCSB's inability to fine; 
  • there are gaps in the Codes' content, such as the lack of an overarching fairness objective; and 
  • PSD implementation will affect the Codes from November 2009.

FSA suggests the following new framework:

  • full application of the Principles to the regulated activities of accepting deposits and issuing e-money; 
  • some new high-level rules applying to retail banking services outside the PSD’s scope for consumers and small businesses in a short Banking Conduct of Business sourcebook (BCOBS)(PSD business will be regulated mainly under the Payment Services Regulations); 
  • transfer of the existing COB rules and guidance applying to deposit taking to BCOBS; and 
  • monitoring and enforcement by the FSA, integrated into its wider risk-based approach to supervising relevant firms and groups.

FSA needs responses by 16 February 2009 and wants to implement these changes on 1 November 2009 to coincide with the PSD.