The Financial Conduct Authority (FCA) today (Tuesday) has raised concerns about the practices of investment platforms SIPP operators in their dealings with the interest earned on customers' cash balances. Many firms even charge an additional fee to customers for holding their cash, a practice known as 'double dipping', which the regulator wants to cease.

Survey Reveals Industry Practices

The regulator expressed its concerns after it surveyed 42 investment platforms and found that most of them retain some of the interest earned on customers' cash balances. The UK regulator has sent a letter to the CEOs of these companies within its jurisdiction.

According to the FCA's survey, 71 percent of the participants retain at least some interest they earn on customers' cash balances. Although the retention rate varies from 10 percent to 100 percent, it averaged around 50 percent. Furthermore, 61 percent charge a platform fee on the customers' cash.

"Rising rates mean greater returns on cash," said Sheldon Mills, the Executive Director of Consumers and Competition at the FCA. "Investment platforms and SIPP operators need now to ensure how much of the interest they retain and, for those who are double dipping, how much they're charging customers holding cash, results in fair value. If they cannot make that case, they need to make changes."

"If they don't, we'll intervene."

The British regulator wants firms to "approach to retention of interest represents fair value" for customers.

Align with Consumer Duty Rules

The regulator also provided a deadline of 29 February 2024 for the firms to make all the necessary changes. The letter to the CEOs pointed out that the changes must be under the companies' responsibilities under Consumer Duty rules.

"We expect firms to provide us with the confirmations and information requested above by close of business on 31 January 2024 and to have made the corresponding changes by close of business on 29 February 2024," the letter stated.

While the UK investment platforms are engaged in 'double dipping' charges, many brands in the US and other jurisdictions are ramping up their interest payments to customers. Most recently, Webull's Australian division launched a cash management tool, offering a yield of 5.4 percent on ideal cash.