Ashurst London
May 2009
Financial institutions group briefing
Regulating retail banking: an end to
the Banking Codes
Currently, the Banking Code Standards
Board monitors and enforces voluntary
Banking Codes which govern banks' day-to-
day relationships with their customers.
As set out in the FSA's Policy Statement PS 09/6, from
1 November these arrangements will be replaced by
new FSA rules set out in a new banking conduct of
business (BCOBS) sourcebook and by industry
guidance currently being prepared by the BBA and
BSA.
The BCOBS rules consist of new high-level rules
(applying to retail banking services outside the scope
of the Payment Services Directive), and the transfer of
existing conduct of business rules and guidance
applicable to deposit taking. The new rules place new
financial promotion, information and post-sale
obligations on firms accepting deposits in the UK.
The FSA has also in the accompanying press release to
PS 09/06 committed to publish comprehensive
information for consumers detailing their rights and
outlining what they can expect from their banking
provider before the new rules come into force – this
guidance is expected to be published shortly before
the 1 November BCOBS implementation date, and will
be circulated to consumer bodies and other relevant
groups prior to publication.
The application of the new rules
BCOBS applies to firms with respect to the activity of
accepting deposits from banking customers carried on
from an establishment maintained by it in the United
Kingdom and activities connected with that activity,
meaning branches of EEA banks that operate in the UK
and e-money issuers fall into the new regime.
BCOBS does not apply to:
• payment services1; or
• a person or firm which has permission for
accepting deposits but only for the purposes of, or
ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN
MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO WASHINGTON DC
in the course of, an activity other than accepting
deposits.
A "banking customer" for BCOBS purposes means:
• a consumer2;
• a micro-enterprise3; or
• a charity which has an annual income of less than
£1m.
Furthermore, the FSA will now apply all the FSA's
Principles for Businesses to deposit taking, as opposed
to simply applying these Principles in a "prudential
context" (e.g. previously the FSA would not expect to
enforce a contravention of a Principle caused by
deposit taking unless it amounted to a serious or
persistent violation which had implications for
confidence in the financial system, or for the fitness
and propriety of a firm or for the adequacy of a firm's
financial resources).
The content of the new rules
Financial promotions
Although banks will generally be familiar with the
FSA's financial promotion regime, BCOBS 2.3.1R
imposes separate obligations on deposit takers.
Specifically, they need to ensure that each
communication made to a banking customer and each
financial promotion communicated or approved by the
firm:
(a) includes the name of the firm;
(b) is accurate and, in particular, does not
emphasise any potential benefits of a retail
banking service without also giving a fair and
prominent indication of any relevant risks;
(c) is sufficient for, and presented in a way that is
likely to be understood by, the average member
of the group to whom it is directed, or by whom
it is likely to be received; and
(d) does not disguise, diminish or obscure important
information, statements or warnings.
As regards whether a financial promotion passes the
"sufficiency" limb of (c) above, the FSA's Guidance
suggests that this will largely be for the firm to assess
itself - the "firm should take into account the nature of
the retail banking service, the banking customer's
likely or actual commitment, the likely information
needs of a reasonable recipient, and the role of the
communication or financial promotion in the sales
process."
Information to be provided to banking customers
In order for a banking customer to make decisions on
an informed basis, BCOBS 4 sets out a high-level
requirement to provide or make available to a banking
customer "appropriate information" about a retail
banking service and any deposit made in relation to
that retail banking service:
• in good time;
• in an appropriate medium; and
• in easily understandable language and in a clear
and comprehensible form.
Following a similar approach to the application of the
financial promotion rules, the determination of what is
"in good time", the appropriate medium for
communicating information and whether it is
appropriate to provide information to a banking
customer will rest with the deposit-taker: The FSA's
Guidance is that "a firm should consider the
importance of the information to the decision-making
process of the banking customer and the time at which
the information may be most useful… For example…a
firm should provide the terms and conditions of the
contract for a retail banking service on paper or in
another durable medium in good time before a
banking customer is bound by them".
The FSA's Guidance as to what is "appropriate
information" includes information relating to:
• the different retail banking services offered by the
firm which share the main features of the retail
banking service the banking customer has
enquired about, or which have the product features
the banking customer has expressed an interest in,
unless the banking customer has expressly
indicated that he does not wish to receive that
information;
• the terms and conditions of the contract for a retail
banking service and any changes to them;
• the rate or rates of interest payable on any deposit,
how and when such interest is calculated and
applied and any changes to that rate or those
rates;
• any charges at any time payable by or on behalf of
a banking customer in relation to each retail
banking service and any changes to those charges;
• a banking customer's rights to cancel a contract for
a retail banking service;
• how a banking customer may make a complaint;
and
• the terms of any compensation scheme if the firm
cannot meet its obligations in respect of the retail
banking service.
This "appropriate information" rule applies before a
banking customer is bound by the terms of the
contract and is an ongoing obligation, applying after a
banking customer has become bound by this contract.
Distance marketing and e-commerce
The FSA's existing distance marketing and e-
commerce rules are transposed into BCOBS 3.1 and
3.2.
Post-sale requirements
BOCBS 5.1.1R imposes general obligations to provide
a service in relation to a retail banking service which is
prompt, efficient and fair to a banking customer and
which has regard to any communications or financial
promotion made by the firm to the banking customer
from time to time.
Aside from placing a general obligation on firms to
treat banking customers fairly in determining the order
in which to process payment instructions, there is little
further guidance from FSA as to how to comply with
this obligation.
Structured deposits
The FSA has reserved its position to apply new rules to
the provision of advice in relation to structured
deposits in the light of the outcome of the work in
Europe relating to retail investment products.
No new training and competence requirements are
placed on firms selling and marketing structured
deposits, though the FSA's position is that it will be
guided by forthcoming European Commission
proposals in this area and may reconsider its position.
Industry guidance
PS 09/6 sets out that the FSA will expect to be asked
to confirm industry guidance on the BCOBS regime.
This guidance is expected to retain elements of the
Banking Codes to the extent that they are not covered
by or conflict with the new BOCBS regime. Once
confirmed, following its approach set out in PS 07/16,
the FSA will take this guidance into account when
exercising its regulatory oversight and will not take
action against a firm which has complied with
4 "Retail banking service" means an arrangement with a banking
guidance covering the issue concerned.
Notes:
1 "Payment services" has the meaning given to it in the Payment
Services Regulations 2009 (SI 2009/209), implementing the EU
Payment Services Directive.
2 "Consumer" for these purposes means any natural person acting for
purposes outside his trade, business or profession
3 "Micro-enterprise" means an enterprise which employs fewer than
10 persons and has a turnover or annual balance sheet that does
not exceed €2 million, including self-employed persons, family
businesses, partnerships and associations regularly engaged in
economic activity
customer, under which a firm agrees to accept a deposit from a
banking customer on terms to be held in an account for that
customer, and to provide services in relation to that deposit
including but not limited to repayment to the customer.

Contacts

James Perry Glynn Barwick

Partner Counsel
London London
T: +44 (0)20 7859 1214 T: +44 (0)20 7859 1288
E: james.perry@ashurst.com E: glynn.barwick@ashurst.com

Simon Wright
Senior associate
London
T: +44 (0)20 7859 2897
E: simon.wright@ashurst.com
Abu Dhabi London Paris
Suite 101, Tower C2 Broadwalk House 18, square Edouard VII
Al Bateen Towers 5 Appold Street 75009 Paris
Bainunah (34th) Street London EC2A 2HA France
Al Bateen UK T: +33 (0)1 53 53 53 53
PO Box 93529 T: +44 (0)20 7859 3888 F: +33 (0)1 53 53 53 54
Abu Dhabi F: +44 (0)20 7859 3880
United Arab Emirates Singapore
Madrid 55 Market Street
T: +971 (0)2 406 7200
Alcalá, 44 #07-01
F: +971 (0)2 406 7250
28014 Madrid Singapore 048941
Brussels Spain T: +65 6221 2214
Avenue Louise 489 T: +34 91 364 9800 F: +65 6221 5484
1050 Brussels F: +34 91 364 9801/02
Belgium Stockholm
Milan Birger Jarlsgatan 6B
T: +32 (0)2 626 1900
Via Sant'Orsola, 3 Box 55564
F: +32 (0)2 626 1901
20123 Milan 102 04 Stockholm
Dubai Italy Sweden
Level 5, Gate Precinct Building 3 T: +39 02 85 42 31 T: +46 (0)8 407 24 00
Dubai International Financial Centre F: +39 02 85 42 34 44 F: +46 (0)8 407 24 40
PO Box 119974
Munich Tokyo
Dubai
Prinzregentenstraße 18 Shiroyama Trust Tower, 30th Floor
United Arab Emirates
80538 Munich 4-3-1 Toranomon, Minato-Ku
T: +971 (0)4 365 2000
Germany Tokyo 105-6030
F: +971 (0)4 365 2050
T: +49 (0)89 24 44 21 100 Japan
Frankfurt F: +49 (0)89 24 44 21 101 T: +81 3 5405 6200
Oberlindau 54-56 F: +81 3 5405 6222
New Delhi Liaison Office
60323 Frankfurt am Main
6 Aurangzeb Road, D-1 Washington DC
Germany
New Delhi 110011 1725 I St NW, Suite 300
T: +49 (0)69 97 11 26
India Washington, DC 20006
F: +49 (0)69 97 20 52 20
T: +91 11 2301 4054 USA
Hong Kong F: +91 11 2301 4089 T: +1 202 349 1111
Suites 1601-6, 16/F ICBC Tower F: +1 202 349 3838
New York
Citibank Plaza
1 Penn Plaza, 36th Floor
3 Garden Road
New York, NY 10119
Central, Hong Kong
USA
T: +852 2846 8989
T: +1 212 245 4540
F: +852 2868 0898
F: +1 212 245 4335

This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more information
please contact us at Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA T: +44 (0)20 7638 1111 F: +44 (0)20 7638 1112
www.ashurst.com

Ashurst LLP and its affiliated undertakings trade under the name Ashurst. Ashurst LLP is a limited liability partnership registered in England and Wales
under number OC330252. It is regulated by the Solicitors Regulation Authority of England and Wales. The term "partner" is used to refer to a member
of Ashurst LLP or to an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Ashurst
LLP's affiliated undertakings. Further details about Ashurst LLP and its affiliated undertakings can be found at www.ashurst.com.
© Ashurst LLP 2009 Ref:12797391 1 May 2009