Regulator looks closely at banks using deposit aggregators: action points for deposit-takers

In a letter addressed to CEOs of deposit-takers on 6 November 2023, the Prudential Regulation Authority (PRA) has issued a timely reminder of issues that deposit-takers must consider if they are using deposit aggregators to source deposits.

These issues were first raised in a joint letter from the PRA and Financial Conduct Authority (FCA) on 16 April 2021 - with interest rates having risen significantly, depositors are now more able to achieve worthwhile returns on savings and turn to aggregators to help them do so.

The original letter preceded the consumer duty but, with the benefit of hindsight, makes the compelling point that banks have a duty to ensure that their customers understand how the relationship between customer-aggregator-bank works, and whether this may result in any significant differences to a "standard" deposit made by a customer with the bank. This is important when considering the level of Financial Services Compensation Scheme (FSCS) protection available and the speed with which any FSCS protection may pay out in the event of default (particularly under the aggregator "trust" model).

Consequently, banks must consider the entire distribution chain and all financial promotions and communications about deposits made via an aggregator service, to ensure that the customer has clarity on these issues.

Action points

• Banks should review both the information available to customers throughout the customer journey and their contracts with aggregators (to ensure that the bank has sufficient oversight and control over communications relating to the service, making it more likely to result in positive outcomes for consumers).

• Similarly (with the consumer duty again in mind) banks should consider how preparation for resolution may differ when dealing with aggregators. How, on resolution, would client-specific information be available and eligible claimant criteria demonstrated when dealing through aggregators?

• Banks should specifically consider their liquidity risk position in the context of business sourced through aggregators. Where a bank sources a significant amount of deposits via one or more aggregators, this may impact on their liquidity risk in a different way to the same number of deposits sourced direct from individual depositors – flows of deposits from aggregators are likely to be correlated.

• All of the above should be subject to senior management oversight – the PRA/FCA could at any time ask a bank to attest or demonstrate that all of the issues highlighted in relation to aggregators have been adequately considered and dealt with by the bank, including the impact of using aggregators on the bank's operational resilience and outsourcing obligations. All the points outlined in the letter should be brought to the attention of the appropriate governing body in the bank. If the bank has significant exposure to deposits through aggregators, have the issues and risks arising from that position been adequately considered and is responsibility for managing those risks clear in the management responsibilities

If you require further advice on any of the above, please contact a member of our Financial Services team.