PRA and FCA have written a Dear CEO letter warning firms of the risks associated with the increasing volumes of deposits placed via deposit aggregators. The letter says the regulators do not want to stifle innovation or competition, but that banks and building societies need to be aware of and to mitigate the risks of these new market players. The letter:
- notes that the core activity of a deposit aggregator may not be regulated;
- says banks and building societies should carry out appropriate due diligence on any aggregator they have a relationship with;
- explains that these firms may operate on a “direct model” where the customer becomes a direct customer of the bank or building society or a “trust model”;
- says customers may not understand how the way in which they hold funds may impact on the speed, or even availability of FSCS protection (if they are unwittingly holding over the limit in one institution);
- stresses that if aggregators act as a firm’s agent, the firm is responsible for ensuring financial promotions are compliant;
- highlights the need to be clear on FSCS coverage and also the need for firms to include the model in their resolution planning; and
- notes the need to factor in the flow of deposits from aggregators within liquidity risk assessments.
The regulators expect senior management to have appropriate oversight over these relationships and want firms to be prepared to discuss the arrangements they have in place and to make any necessary regulatory notifications.