Banks considering closing branches or ATMs will need to tell the City regulator before any final decision is made, so that it can monitor whether customers are being treated fairly.
The Financial Conduct Authority (FCA) said it expects banks, building societies and credit unions to keep it informed of any plans for closures or conversions “in good time” before any final decision is made.
Before making a final decision, firms should provide an analysis of the needs of customers using the facilities, the impact of the proposals on them, and what alternatives there are or could be.
The analysis could involve the firm speaking with local groups, charities and the local authority, as well as analysing data it already holds or holding a new customer survey.
If a firm decides to go ahead with a closure, it is expected to clearly communicate this to customers no less than 12 weeks beforehand.
This should include making customers aware of alternatives. This will give customers time to take action, such as switching banks, the regulator said.
However, commentators raised concerns that banks may try to “get around” their commitments to local areas simply by offering them advice on online banking.
The FCA’s guidance, which applies from September 21, says: “The analysis of alternative provision that could reasonably be made available to address any loss of service caused by the closure or conversion could include, but is not limited to the following. The firm could consider:
“Sharing services with other providers;
“Providing mobile banking hubs or cash delivery services;
“Commissioning a free-to-use ATM, or
“Supporting customers to use digital channels where they are able.”
The guidance also says that firms should assess the suitability of any alternatives, including for vulnerable customers.
It adds: “This should include consideration of the relevant characteristics of customers and of the area, such as the quality of internet or mobile signal.”
Concerns about vulnerable people and rural and deprived communities being cut off from cash had been mounting before the coronavirus pandemic struck.
One in 10 UK adults have said they did not know how they would cope, or that they would not cope at all, in a cashless society, according to the FCA’s financial lives survey.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “This isn’t enough to safeguard the future of the increasingly endangered branch network. At best, it’ll give you time to switch to a different local branch, and at worst it will close the last bank in town and offer advice on online banking instead.
“Banks will have to give customers some notice – so they have 12 weeks to switch to a bank with a local branch. They’ll also need to show the FCA they’ve considered their customers, and that they’ll be able to go elsewhere.
“This can mean another bank, the Post Office, commissioning a free ATM or providing a mobile bank. However, it also encompasses offering customers help to access online banking – which is a handy way for banks to get around a commitment to the local area.
“For banks, this offers the opportunity to close expensive branches with dwindling customer numbers. But for those customers who rely on them, it can make life incredibly difficult. Vulnerable people are far more likely to rely on cash and to struggle to go further afield if a branch is closed. In many cases, online banking isn’t suitable for their needs, so they risk being cut off if their branch or ATM closes for good.”
In the early weeks of the coronavirus lockdown while much of the high street was shut, there were significant falls in ATM withdrawals. The contactless payment limit was also increased from £30 to £45 from April, making it easier for people to use their card as an alternative to cash.
But more recently, as parts of the economy have opened up again, there have been signs of cash use also starting to edge back up.
The Post Office recently reported that business customers deposited £831 million in its branches in August, up by 3.1% compared with July.
Back in April, £313 million was deposited by business customers.
Sheldon Mills, interim executive director of strategy and competition at the FCA, said: “Although closures or conversions are decisions for firms to take, it is important they implement these decisions in ways that are fair to their customers.
“Even during the pandemic, cash remains essential to many consumers. The publication of this guidance sets out clearly our expectations on firms and will ensure that firms make it a priority that customers are treated fairly, especially those who are most vulnerable.”
The guidance will apply to FCA-regulated firms operating physical sites such as bank branches, building society branches, credit union offices or cash points.
The FCA said it will continue to work closely with the Payment Systems Regulator (PSR) to ensure access to cash is maintained.
In the 2020 Budget, the Government said it intends to legislate to protect access to cash for those who need it.
The FCA said its guidance is not intended to overlap with, or to pre-empt any decisions regarding that legislation.
Gareth Shaw, head of money at Which?, said: “While a step in the right direction, this guidance for firms won’t solve the cash crisis on its own – the Government must introduce promised legislation to protect access to cash for as long as people need it.”