Publication of the policy statement, Access to Cash Sourcebook Instrument 2024 and Access to Cash Sourcebook (Amendment) Instrument 2024 follows the FCA’s December 2023 consultation on establishing an access to cash regulatory regime (CP23/29). Take a look at our previous Engage article for more on the consultation proposals including the background and related FSMA 2023 amendments to FSMA 2000: 'UK access to cash: FCA and Bank of England consultations'.

Which firms are within scope of the new regime?

On 24 May 2024, HMT announced the designation of 14 large banks and building societies which will be subject to the new access to cash regime. HMT also designated two LINK entities (Link Scheme Limited and Link Scheme Holdings) as an operator of cash access coordination arrangements (a ‘coordination body’) – and which will be subject to the FCA’s new rules. This means LINK can coordinate cash access assessments on behalf of designated firms.

What does being designated require firms to do?

In outline, under the new regime the firms designated by HMT must:

• identify gaps or potential gaps in cash access provision;
• assess a wide range of local needs; and
• provide additional cash access services promptly if the assessments find a significant gap in provision.

A diagram on page 8 of the policy statement shows how the new cash access rules work alongside the FCA’s existing Branch and ATM closures or conversions guidance (FG22/6).

What’s changed from the consultation proposals?

While changes have been made to the final rules, the FCA does not consider that they differ significantly from the draft rules it consulted on as the changes are aligned with the policy intention and don’t significantly alter the original cost benefit analysis.

Some key changes and clarifications in the policy statement include:

Cash access assessments

• Relevant local area: Respondents raised questions on appropriate methods for defining the relevant local area, factors that should be considered when assessing if there is a deficiency and its significance, and the provision of additional cash access services required following an assessment. The FCA has set out further detail of its approach – which continues to recognise the need for flexibility - in Chapters 2 and 3. It has also updated the definitions of rural and urban areas in Scotland to accurately reflect the analysis that informs HMT’s August 2023 Cash Access Policy Statement (HMT Statement) (see further Chapter 3).
• ATM closures: The FCA has amended its rules and guidance to be clearer on when ATM closures and changes to assisted cash provision will trigger an assessment (Chapter 2).
• Deadline to carry out cash access assessments: In response to practical concerns about implementation from respondents, the FCA has extended the deadline for carrying out cash access assessments and reviews from 8 to 12 weeks giving designated entities more time to gather data and engage with local stakeholders, which was a factor raised by both industry and consumer respondents (Chapter 4). The FCA will keep assessment and review timeframes under review to ensure they remain appropriate as part of the ongoing monitoring under its new Rule Review Framework.
• Timeframe to provide additional cash access services: When additional cash access services are required following an assessment, the rules require firms to deliver without unreasonable delay. The 3-month backstop for the delivery of services has been retained, but the FCA has amended its rules to give firms longer in exceptional circumstances (although the requirement to deliver without unreasonable delay will still apply). There doesn’t appear to be any guidance on what might constitute ‘exceptional circumstances’.
• The ‘last branch in town’ proposal: The FCA is taking forward its ‘last branch in town’ proposal, subject to a small number of amendments to better fulfil the policy intention (see Chapter 3). By way of reminder, the proposal requires that, regardless of the trigger event, if an assessment finds there is only a single remaining branch providing a cash access service within the relevant distance (and no other facilities serving the customers of at least one other firm), the assessment would have to, by default, assume there is a deficiency and proceed to considering whether it has or would have a significant impact.
• Joint accountability: On the consultation proposal to hold designated firms jointly accountable for providing cash access services required following an assessment, in Chapter 2 the FCA sets out its position on why designated firms remain accountable for addressing gaps left by non-designated firms, including the Post Office. It also clarifies its expectations on proportionality and why it doesn’t expect a designated firm to have to duplicate services in an area where it has an existing facility in the same area that meets the needs identified in the assessment (see Chapter 5).
• Other things that can be taken into account: Guidance has been added to make it clear that firms can take into account additional cash services that are due to be provided independently of the assessment when considering what is reasonable for them to be required to deliver themselves.
• When a service can be stopped: The rules have been amended to allow firms to stop providing a service required by an assessment a minimum of 2 years after it has been delivered, subject to a new assessment being carried out.

Keeping communities informed

• On the consultation proposals to keep communities informed, Chapter 6 sets out the FCA’s expectations for firms to consider the needs of their customers including those who are digitally excluded, in line with the Consumer Duty, the FCA’s Guidance for firms on the fair treatment of vulnerable customers (FG22/5), and to comply with relevant equality legislation.

Ongoing compliance with wider obligations

• The FCA does not see the new regime as standalone and makes it clear throughout the policy statement that all firms, not just those designated by HMT for the purposes of the new rules, should continue to comply with their wider obligations, including their obligations under the Consumer Duty (in light of, where applicable, the expectations set out in FG22/6). The FCA will continue to supervise firms’ compliance with these wider obligations.

Implementation timetable/risk of retrospection

• Following feedback, there is now an 8-week implementation period between publishing the policy statement and the rules coming into force on 18 September 2024 to give designated entities time to familiarise themselves with the rules and establish the necessary processes to comply with them.
• Chapter 4 of the policy statement sets out what the FCA expects from designated entities as its rules come into force.
• Mindful of the risk that firms might close or reduce services before the new regime comes into force, any closures of cash access services which are yet to be announced or which have already been announced as taking place after the new rules come into force fall under the requirements of the new regime. Where firms have already announced closures taking place before the FCA’s rules come into force, these will not be subject to the new regulatory regime. The FCA emphasises that firms should not rush through closures before 18 September. It points out that under FG22/6: Branch and ATM closures or conversions, firms should communicate closures to customers at least 12 weeks before they take effect. This does not mean that where past closures have left gaps in provision with significant impacts they cannot be filled.

Exclusions and limitations

The FCA has been tasked with seeking to maintain ‘reasonable’ access to cash. As per the HMT Statement, it is important that the rules are proportionate, and the FCA states that it is only going to require designated firms to provide additional services where there are significant impacts on local areas. The FCA believes its channel-neutral approach to the type of facilities firms can provide also ensures a proportionate approach.

The new access to cash powers also do not extend to:

• The provision of wider banking services, such as card and PIN management or fraud and scam support, which go beyond the provision of cash access services.
• Maintaining branch networks, or preventing bank branch closures generally, as cash access services can be provided through other facilities which cost less to run than branches offering a wider range of services.
• Requirements relating to firms’ support for customers to transition to digital channels, although the FCA emphasises the importance of firms’ support for digitally excluded consumers (particularly as these consumers are more likely to rely on cash). The FCA directs firms to FG22/6 and the Consumer Duty when considering how they communicate with and support the digitally excluded.
• The role of ATM interchange fees in sustaining an ATM network that delivers reasonable access to cash. The FCA points out that its oversight of LINK is limited to its role as a designated coordination body for access to cash.

No private right of action

It is noteworthy that the FCA has not provided a private right of action (PROA) under s.138D FSMA 2000 for breaches of the access to cash rules. The FCA explains that this is because the rules are intended to make sure designated firms are responsible for providing reasonable cash access to communities generally, rather than to any one individual in that community. If the FCA applies a PROA to its new rules, it believes that would lead to the imposition of a disproportionate burden on multiple designated firms in potentially having to deal with large numbers of claims from people with whom they have no customer relationship. The FCA considers that it has a sufficient range of robust mechanisms to make firms accountable for breaches of the rules, including:

• the right to ask for a review of a cash access assessment in certain circumstances; and
• its supervision of the new rules and powers to intervene where it needs to do so to protect reasonable access to cash.

Where there are consistent failures by firms the FCA says it will use the full range of its supervisory toolkit, including public censure, the power of direction (under s.131W FSMA 2000) and will consider other enforcement action in the most egregious cases.

Regulatory partnership with Bank of England and Payment Systems Regulator

The FCA highlights that it works closely with the Bank of England (BoE) and the Payment Systems Regulator (PSR) to deliver on their shared priorities in protecting access to cash.

It reminds firms that in April 2024 the BoE used its new powers to supervise wholesale cash distribution, which were introduced under FSMA 2023, to publish final Codes of Practice for the wholesale cash distribution market to support retail access to cash. See our previous Engage article 'UK access to cash: Bank of England publishes final Codes of Practice on wholesale cash distribution'. The Bank also sets targets for the denominational mix of notes in ATMs, and the FCA encourages firms to adhere to these targets, and to consider if they can align their denominational mix targets to those areas of the country which may have a particular need for access to lower denominations of notes.

The FCA also mentions the PSR’s March 2024 call for views as part of the second annual review of SD12, gathering information on how well SD12 is working and its role following the changes introduced by FSMA 2023. The FCA continues to engage with the PSR to ensure the effectiveness and consistency of their respective rules and supervisory approaches and to avoid unnecessary regulatory overlap.

Research on characteristics associated with cash reliance in the UK

The FCA has also published related research on cash reliance in the UK, along with an overview of geographical cash access coverage in the UK at the end of Q2 2023. The key finding from the research (combined with results from the FCA’s Financial Lives 2022 survey) is that consumers are more likely to rely on cash if they:

• have low digital capability or poor digital access (4 times as likely);
• are in a low-income household (3 times as likely);
• are not employed (twice as likely);
• have poor health;
• live in an urban area;
• live in Northern Ireland or Scotland.

The findings suggest that without data to measure cash usage directly, digital exclusion and low income would be the best measures of levels of cash reliance across the UK.

Next steps and how can Hogan Lovells help?

The new rules come into force on 18 September 2024, allowing designated firms little time to get to grips with the requirements. The FCA states that designated firms and coordination bodies should use the time before then to:

• familiarise themselves with the new rules;
• establish and publish their cash access assessment procedures;
• prepare to receive cash access requests; and
• prepare to comply with new reporting requirements.

Transitional arrangements and the FCA’s expectations of firms during the implementation period are set out in Chapter 4 of the policy statement. It explains that, as it has extended assessment timeframes to 12 weeks in perpetuity (see above), it is not introducing an extended assessment timeframe in the initial period after the rules come into force (as originally proposed).

If you would like to discuss any aspect of the FCA's final rules, please get in touch with one of the people listed above or your usual Hogan Lovells contact.

We have significant experience in supporting firms on similar implementation projects, from undertaking initial gap analysis work, project managing and supporting the implementation of a rolling program of enhancements and operational changes. The combination of our legal and consulting teams provides you with a full range of services, and clear guidance on how the solutions can be applied within the business.