Banks and building societies face new rules to help maintain cash access as thousands of bank branches close

While the new powers won’t prevent bank branches from closing, the rules will have an impact where branches are a key local source of cash, the FCA said.

The proposal follows new powers granted to the regulator by the Financial Services and Markets Act 2023.

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Banks and building societies designated by the Government to assess and fill gaps, or potential gaps, in cash access provision that would significantly impact consumers and businesses.

The assessments will need to consider local factors, such as demographics and transport.

If firms identify gaps, they will need to act to address these needs, the FCA aid.

It comes amid widespread bank and building society branch closures, with 5,791 shutting since January 2015, according to research by Which?.

It’s sparked concerns that the closures, combined with difficulties accessing free ATMs, could lead to “cash deserts”.

The FCA’s consultation document said: “Our data suggests that in the two years to (the first quarter of) 2023, 1,391 bank and building society branches closed, as did 2,176 free-to-use ATMs.”

The regulator wants to prevent people from facing unreasonable costs to access their money, such as through charges, travel costs or time.

Sheldon Mills, executive director of consumers and competition at the FCA said: “We know that, while there is an increasing shift to digital payments, over three million consumers still rely on cash – particularly people who may be vulnerable – as well as many small businesses.

“It’s important that we support consumers impacted by recent innovations.

“These proposals set out how banks and building societies will need to assess and plug gaps in local cash provision.

“This will help manage the pace of change and ensure that people can continue to access cash if they need it.”

In the first quarter of 2023, 95.1 per cent of the UK population were within one mile of a free-to-use cash withdrawal point, such as cash machines or Post Office branches.

During the same period, 99.7 per cent of the UK population were within three miles of one of these services.

The ability to access cash can impact local communities, economies and high streets, so it’s important to meet local needs, the regulator said.

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Under the proposals, designated firms will be required to:

• Undertake cash access assessments when changes are being made to cash access services, to understand whether additional services are required to meet local gaps.
• Respond to requests from local residents, community organisations and representatives to consider, assess and plug gaps.
• Deliver reasonable additional cash services to fill gaps in provision where assessments show that there is or will be a significant local gap.
• Ensure they do not close cash facilities, including bank branches, until any additional cash services identified are available.

The FCA said the rules will work alongside existing guidance on bank branch closures.

The acceptance or non-acceptance of cash by retailers is not being looked at by the consultation.

The FCA said that existing law permits retailers to decide whether to accept cash or not, so the regulator cannot require them to do so.

Its consultation will remain open until February 8. The FCA expects to finalise the rules by the third quarter of 2024.

The volume of non-cash payments in the UK has surged from around 46 per cent to 86 per cent in the decade to 2022, according to the FCA’s consultation document.

However, 3.1 million adults (six per cent) used cash to pay for everything or most things over the 12 months to May 2022, the FCA’s Financial Lives 2022 survey found.

Steve Makaritis, Chief Executive of NoteMachine, the UK's second-largest ATM network, said he welcomed the pace in which the FCA had proposed the new rules.

He added: "We have been campaigning on this for years and it is critical that the FCA's next steps address the funding model in order to maintain the UK's ATM network.

"As we've seen earlier this week, 23,000 cash machines are expected to be cut over the next few years - the FCA needs to prevent this if it is to reduce gaps in access."

Cash usage has grown for the first time in a decade, according to a new report published by the British Retail Consortium (BRC) today.

The BRC’s annual Payments Survey found coins and banknotes accounted for nearly a fifth (19 per cent) of transactions in 2022.

The report said the increase reflects a natural return to cash following the move to contactless during the coronavirus pandemic.