Close up of customer paying by credit card. Stock. Payment for purchase by Bank transfer on a colored background
Image © BlackWhaleMedia via Envato Elementse

How will the Financial Services & Markets Bill impact financial inclusion?

This is part of our content series on the Financial Services & Markets Bill (FSM), its potential impacts and the alterations to the Bill that various advocacy groups are calling for. The FSM was announced in May 2022. It is a landmark piece of UK government legislation that will significantly change how our country regulates its financial services industry.


Financial exclusion refers to people being systematically blocked from accessing financial products and services due to their identity or personal circumstances. Financial exclusion adds to other economic barriers, making it even harder for vulnerable people to do things like secure decent housing or get a job. 

For example, low-earners often have to pay higher interest rates on any credit they take out, because many financial firms consider them less likely to pay the money back and therefore either opt-out of serving them or demand a higher reward for taking the risk. Homelessness can make it incredibly difficult to open a bank account because most banks require you to have a permanent address. Research shows that such difficulties are compounded for people who also have a marginalised identity, such as being disabled or an ethnic minority. 

Regulation is one way societies can try to combat financial exclusion, and increasing access to financial services has been seen as part of the regulators’ role for a long time. The UK government has pointed to a few parts of the Financial Services and Markets Bill as being specifically about financial inclusion, including:

  • Ensuring access to cash 
  • Increasing consumer protections against financial scams 
  • Aiming to increase the diversity of regulatory panels


However, the FSM in its current form does not require regulators to “have regard” of financial inclusion, a technical term that would ask regulators to actively consider the impact their regulation might have on financial exclusion. Some groups are pushing for this amendment to be included.

Increasing access to cash

Cash used to be so ubiquitous that nobody bothered to think regulators should be concerned about ensuring access to it. This has changed. The number of bank branches in the UK halved between 2015 and 2022, while the number of free ATMs dropped by almost a quarter between 2018 and 2022. 

A major problem with this situation is that 1 in 10 UK adults say they still rely on cash to a ‘great’ or ‘very great’ extent. More importantly, from a financial inclusion perspective, reliance on cash is higher in vulnerable groups, including people on lower incomes, older people, and people with disabilities and physical and mental health conditions. Cash is also a commonly-used budgeting tool. Physically and psychologically, it’s easier for people to spend less if they pay with notes and coins rather than the ‘invisible’ money of a credit card. Cash can therefore play an important role in debt recovery or helping people dealing with financial difficulties such as the current cost of living crisis. 

The FSM Bill lays out a new legislative framework for protecting access to cash, with the Financial Conduct Authority (FCA) taking on the new responsibility of ensuring there is a “reasonable provision” of cash withdrawal and deposit services for UK residents. Exactly what constitutes “reasonable” access has not yet been decided, and it has also not yet been made clear whether the Treasury or the FCA will be in charge of the definition. (The Treasury is due to publish a policy statement with more details later down the line.) However, the FCA does seem to have been allocated plenty of power and flexibility to get the job done. For example, it will not be limited to only enforcing geographical minimums such as ‘every county must have x ATMs’, but can take into account a range of local factors to match cash provision to the specific needs of specific populations. 

Still, there have been calls for the cash provision parts of the FSM to go further. One particular concern is that the Bill does not specify that cash access must be free. Charges on withdrawals and deposits hit hardest the most cash-dependent and by extension the most vulnerable. Another call is for the FSM to explicitly state that the FCA will be able to full-out stop the closure of cash access points if necessary, to avoid a situation where there are long gaps in cash provision while the FCA is getting new facilities set up. 

Of course, even if the FCA does get such powers, it won’t be able to do much about the cash access facilities that have already closed - and these closures are happening at such a pace that there is worry that a lot of the damage may have already been done by the time the Bill passes. One suggestion is for the government to ask the financial industry to slow down or stop such closures right now, rather than waiting for the Bill to become law. (The industry wouldn’t be forced to agree, but may well be incentivised to, as it generally pays to try and keep lawmakers on side.) 

There has also been discussion about whether the UK should consider making regulation to require businesses to accept cash. At the moment, this seems a much less pressing problem than cash access, because there aren’t widespread reports of people being unable to buy the things they need with cash. But the situation could change quickly. Adding a requirement to the FSM for the financial regulators to collect and publish some data about cash acceptance rates around the country would be one way of monitoring the situation and spotting any potential problems early. 

Increasing compensation for APP scams

Fraud became the UK’s most common crime in 2021 - it is committed about 5 million times a year. Vulnerable people tend to be most badly affected; they are often a more enticing target for criminals and the financial and emotional ramifications of becoming a victim of fraud can have a larger impact on their lives.

The FSM Bill aims to better protect UK residents from the financial fallout of one particularly pernicious type of fraud - Advance Push Payments (APP) scams. This is where victims are tricked into thinking they are sending money to a genuine payee, such as their bank or a real business. APP scams have been increasing rapidly for years - Britons lost £583 million to them in 2021

Pre-FSM, some major banks had voluntarily committed to reimbursing their customers if they fell foul of an APP scam. But the FSM sets out a pathway - and a deadline - for the Payments Systems Regulator (PSR) to make such reimbursements mandatory. (Although it does not specify exactly which payment providers would be required to do this reimbursing.) This could make a big difference. At the moment, about half of the losses to APP scams are paid by the victims, while ombudsmans and standards boards have reported that the payment providers have repeatedly treated victims of APP scams in inconsistent and unfair ways

However, the FSM only covers APP scams if the victim paid the fraudster using something called ‘Faster Payments’. This is the instant electronic system that underpins most transfers between UK bank accounts, whether done via mobile, online or in-branch. The vast majority of money (87 percent) lost to APP fraud was transferred by Faster Payments. However, people who pay via things like international transfers or e-money would not be protected under the FSM Bill. So the government has been called upon to correct this disparity.

There have also been requests to increase the scope of which scams will be reimbursed beyond APP fraud. Other common scams that the Bill could increase protection for include pension scams, investment fraud and cryptocurrency swindles.

I'll be glad to help you with your loan application!
Image © drazenphoto via Envato Elementse

Improving regulatory panel diversity

Regulators, including the FCA and the Prudential Regulation Authority (PRA) hold panels where they get thoughts and input on their work from a range of stakeholders. The FSM Bill formalises this idea. The panels will become statutory (required) and more transparent, with regulators now having to publish information on how they appoint and engage with their panels. The idea is that these processes will increase the diversity of the panels. At the moment, there are concerns that certain groups, including marginalised ones, are not being represented adequately. 

There have been suggestions that this requirement could be strengthened by setting quotas and requirements for specific groups to be represented. For example, the Finance Innovation Lab has called for public interest representatives to make up at least half of all regulator stakeholder panels.

Financial inclusion as a regulatory goal

Some campaign groups would like the FSM Bill to include a clause that makes promoting financial inclusion a specific goal of the regulators. There are a few different ways this could be done. In the first, the FCA could “have regard” for financial exclusion, which means it should consider how its decisions might make it better (or worse). A step above that would be to make financial inclusion a statutory objective. That would turn it from a consideration into a requirement. 

The government rejected the suggestion of putting either of these ideas into the FSM, citing other pieces of financial regulation that already deal with the issue. The FCA has a series of ‘Treating Customers Fairly’ outcomes that it asks financial firms to adhere to, and is itself bound by the Public Sector Equality Duty, which compels public bodies to “look for ways to eliminate discrimination, advance equality of opportunity and foster good relations between people who share protected characteristics, and those who do not”. 

There is also the new Consumer Duty, a 2022 principle of the FCA that requires financial firms to produce ‘good outcomes’ for customers, including by having a “focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction”. However, these rules will only cover existing customers, which is why some consider it an imperfect bulwark against financial exclusion, a key aspect of which is that certain groups are barred from accessing financial products in the first place.


Recent articles

Reader Comments