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The new banking conduct regime: BCOBS

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From 1 November 2009, there will be a new banking conduct regime which will apply to the regulated activity of accepting deposits (and connected activities) and to payment transactions and certain aspects of the operation of "payment accounts".
The banking conduct regime
The new banking conduct regime comprises:
  • the conduct of business requirements in the Payment Services Regulations 2009, which apply to payment service providers, including banks, e-money institutions, and payment institutions conducting payment services, including the provision and operation of "payment accounts" within the scope of the Payment Services Directive
  • full application of the FSA's Principles for Businesses to the regulated activities of accepting deposits and issuing e-money as a retail banking service (to the extent that these do not conflict with the PSRs)
  • the Banking Conduct of Business sourcebook (BCOBS) containing high-level rules and guidance
  • monitoring and enforcement by the FSA of the retail banking regulatory framework which in the case of the conduct of business requirements of the PSRs will be "complaints-led" (i.e. based primarily on information received from customers and other interested parties)
  • the availability of the right of action under section 150 of the Financial Services and Markets Act 2000 in relation to breaches of BCOBS rules

There are no additional reporting requirements for firms as a result of either BCOBS or the conduct of business requirements of the PSRs.

The new banking conduct regime will replace the current largely self-regulatory regime in which  monitoring of compliance with the voluntary Banking Codes is undertaken by the BCBS.The FSA believes that the new framework will have real benefits for consumers, citing in particular the ability to monitor and enforce Principle 6 (a firm must pay due regard to the interests of its customers and treat them fairly) as fitting with its new credible deterrence enforcement approach.
The FSA consulted on BCOBS in CP08/19 (November 2008) and produced a feedback statement (PS09/6) (April 2009).  Further consultation was undertaken in CP09/20 (July 2009) on a small number of additional rules including provisions relating to liability for losses for unauthorised transactions outside the scope of the PSRs and advance notification of changes to interest rates that are disadvantageous to customers. Feedback on these proposed requirements was provided in Handbook Notice 92.

BCOBS – structure and application

A number of chapters of BCOBS represent a transfer of existing rules and guidance on deposit-taking from the Conduct of Business sourcebook (COBS) (e.g. BCOBS 2 covers current COBS 4 provisions; BCOBS 3 reflects the requirements of COBS 5).  The table below also refers to those provisions which were introduced late in the development of the new regime and reflect requirements in the PSRs (consulted upon in CP09/20).
BCOBS 1: Application of the rules and restrictions on excluding liability
BCOBS 2: Communication with banking customers and financial promotions (elements of COBS 4 continue to apply to structured deposits, cash deposit ISAs and cash deposit Child Trust Funds)
BCOBS 3: Distance communications – rules derived from the Distance Marketing Directive   and the E-Commerce Directive
BCOBS 4: Information to be communicated to banking customers including advance notification of changes to interest rates; disclosure of when funds will be available and inclusion of interest rates in statements of account
BCOBS 5: Post-sale requirements including rules on prompt and efficient service, facilitating switching accounts, lost and dormant accounts, liability for unauthorised payments, value-dating rules, non-execution or defective execution of payments
BCOBS 6: Cancellation rights which are not limited to distance contracts (but excluding fixed-term deposits)
BCOBS will apply in full where a retail banking service is not a payment service within the meaning of the PSRs.   Where a retail banking service is a payment service under the PSRs, BCOBS 4 will not apply to it but other chapters of BCOBS will apply with some modifications.

BCOBS will apply to the activity of accepting deposits from banking customers (and connected activities) from an establishment maintained in the United Kingdom and therefore applies to branches of overseas firms including incoming EEA branches.
Banking customer
BCOBS will apply to a firm when it accepts deposits from a "banking customer" (and in relation to connected activities).  This is a new term and covers not only consumers but also "micro-enterprises" and charities with an annual income of less than £1 million. The definition of micro-enterprise is the same as the one used in the PSRs, to ensure consistency across the banking conduct regime.
Training and competence
The FSA has confirmed that, as the activities covered by BCOBS are relatively simple and process-oriented, and firms are already required to employ well-trained, competent and skilled staff under the high-level competence rule (SYSC 5.1.1R), there will be no additional training and competence requirements with the introduction of BCOBS. However, the matter will be kept under review particularly in light of the FSA's further work on the possible introduction of new requirements on the provision of advice on deposits, including structured deposits.
Industry guidance and information for consumers
It is envisaged that the FSA will shortly confirm industry guidance being developed by the British Bankers' Association (BBA) and the Building Societies Association (BSA).
Before the new regime comes into effect, the FSA will issue new Moneymadeclear guides (one on bank accounts and the other on credit cards) along with two promotional flyers similar to those used to alert account holders to the Banking Code.
Transitional provisions
There are transitional provisions in relation to:
  • references to the Banking Code and the Business Banking Code in documentation and literature until 1 May 2010
  • guidance on the advance notification of material detrimental interest rate changes and the ending of bonus/introductory interest rates until 1 May 2010
  • BCOBS 5.1.13R on value-dating until 1 February 2010