Self-regulation of retail banking came to an end on 1 November 2009 with the establishment by the Financial Services Authority (FSA) of a new banking conduct regime. This new regime largely replaces the voluntary Banking Codes and comprises:

1. a new Banking Conduct of Business sourcebook (BCOBS) which contains high level rules and guidance in relation to the activity of accepting deposits from banking customers

2. the conduct of business requirements of the Payment Services Regulations which implement the EU Payment Services Directive

3. full application of the FSA's Principles for Businesses to the regulated activities of accepting deposits and issuing e-money.

For the purposes of BCOBS, a banking customer is defined as a consumer, micro-enterprise or charity which has an annual income of less than £1 million. A micro-enterprise is defined as a business which employs fewer than 10 people and has a turnover or annual balance sheet that does not exceed €2 million.
One criticism of BCOBS is that it only applies to savings and current accounts and not to consumer credit products which will remain subject to the Consumer Credit Act. Consumer credit services will of course continue to be regulated by the OFT. However, consistent regulation across the two areas will only be achieved if the FSA and OFT develop a much closer working relationship.

The Payment Services Regulations apply to payment service providers such as banks and building societies. One provision to watch is Regulation 54(1) which states that charges in respect of payment services can only be levied "if such charges reasonably correspond to the payment service provider's actual costs".

For those of you who have not yet been contacted by your banks, updating their terms and conditions to bring them into line with the new regime, the letter is no doubt in the post.

Laura McMorland is a solicitor specialising in banking with leading UK law firm Shepherd and Wedderburn LLP. laura.mcmorland@shepwedd.co.uk

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