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Labour MP Siobhain McDonagh criticised the Financial Conduct Authority (FCA) for being late to tackling the issue of access to cash as she seeks to amend the government’s financial services bill to protect “free” access to cash.
“Can I politely suggest that I think you are a little late to the party,” McDonagh told the regulator’s interim chair Richard Lloyd and CEO Nikhil Rathi at the Treasury Committee’s hearing on Monday, which was examining the government’s Financial Services and Markets Bill.
According to McDonagh, one in five people says they would struggle to cope in a cashless society and it disproportionately falls on the elderly, people with lower income and those with physical or mental health difficulties.
The MP said she is now trying to amend the bill to ensure not just access to cash but access to free cash is available for everybody.
“I am sorry if it seems we are late to tackling this”, Lloyd said, stressing that the FCA is taking this issue “incredibly seriously”.
The legislative proposal would designate the FCA as a lead regulator on access to cash, although the policy statement from the Treasury, attached to the power, has not been made public yet.
Lloyd emphasised that access to cash is an issue that the FCA cares about deeply. “We are not waiting for the power to come in. We are obviously doing everything we can without the power to promote reasonable access to cash.”
In recent years, regulatory work to protect cash has centred around preserving the ATM network and addressing the growing concern of branch closures via alternative solutions, such as shared hubs and post offices. The UK has also passed legislation to enable cashback without a purchase at shops.
Bank branches not coming back
Bank branch closure has been a particularly pressing issue, which could impact not only people in vulnerable circumstances but also small businesses.
During the hearing, McDonagh pointed out that since 2015, 5,233 branches have closed, a rate of 54 each month, and “in the beginning, [the FCA] didn’t seem to be interested in it”.
The FCA published its first guidance on the issue in September 2020, setting out the expectation that firms should consider the impact of branch and ATM closures on their customers’ everyday needs and the availability of alternatives, such as other bank branches, ATMs or post offices offering cash-related services.
The guidance has been recently updated to underscore that the assessment should pay particular attention to the impact on vulnerable customers.
Rathi said the FCA in fact is taking a proactive approach and in recent months they have been looking not just at closures but also partial closures.
The FCA is also considering the experience from other countries, Rathi told lawmakers. For example, banks in the Netherlands trialled mobile banking hubs and occasionally delivered cash at homes in rural areas.
While stressing that protecting cash is an important issue for the FCA, Lloyd acknowledged that the FCA cannot “turn the clock back and put back in place branches that were closed some years ago.”
“And I regret that,” Lloyd said.
He added though that the issue is bigger than what the FCA alone can tackle. Protecting access to cash also concerns ATMs, cashback, post office banking and cash acceptance by merchants, which are all outside the FCA’s power.
Post offices not a panacea
In the face of rapid bank branch closures, post offices could provide an alternative solution to offer cash-related services.
McDonagh was, however, dismissive of the idea of postal banking, stating that “post offices are not the panacea that everybody makes them out to be”.
She said the number of ATMs has shrunk considerably since the Bank of Ireland lost the contract with post offices and argued that most of these facilities are not physically accessible for people with wheelchairs.
In addition, people have complained that post offices do not have the place to make people feel confident about withdrawing money.
“I’m just not convinced that the FCA are the people that are going to care there is a curb, or a step, or a lack of safety for some of our most vulnerable constituents,” McDonagh said.
Although the MP endorsed the idea of shared banking hubs, she said “they often arrive far too late.”
A worldwide concern
Protecting access to cash is a concern in many parts of the developed world.
Although it is hard to measure what constitutes access to cash, one typical metric looks at geographical proximity to cash access points, such as bank branches, ATMs and the post office network.
According to FCA data in June, 99.7 percent of the UK population is within 5km of a free cash access point, and 95.5 percent is within 2km of a free cash access point.
Similarly in the Netherlands, public and private stakeholders in 2007 agreed that the straight-line distance to the nearest ATM should not exceed 5km.
In Lithuania and Latvia, the central banks and financial market participants have recently signed memoranda of understanding with similar commitments.
Meanwhile, the Polish national cash strategy states that access to cash is acceptable if 90 percent of the population has a cash access point within 10km.
In some markets, legislators have taken a strict approach to cash access. In France, for example, the law gives consumers the right to freely choose how to pay and refusing cash is a criminal offence in the country.
The issue is currently not regulated in the EU, and the European Commission has hinted at the possibility of a legislative proposal as part of the discussion around a digital euro.
Valdis Dombrovskis, European commissioner for trade, said at a conference on Monday that his office is planning to amend the EU’s digital euro legislation to ensure that everyone continues to have access to cash.
