Lenders found to be failing in their responsibilities to provide liquidity could face fines under the FCA, as industry data suggests cash remains the second most popular payment method in the country.
Efforts to ensure consumers and businesses have access to cash are being stepped up with a series of new rules imposed by the city’s watchdog.
The Financial Conduct Authority (FCA) said that from 18 September, banks and building societies would face increased obligations to take into account if local communities do not have access to services, such as branches and ATMs, and to plug “significant gaps”.
The new obligations would require them to act if assessments, which can be requested by local authorities, reveal difficulties in providing basic services, including the ability to deposit cash.
Lenders should also keep a service, including a branch or ATM, open until a replacement is identified or operational.
Failure to comply with the rules could ultimately lead to an unlimited fine, the FCA said.
The regulatory framework covers the operations of the 14 largest lenders in the sector.
They will have the possibility to review the cash provisions every two years.
The banking industry has long been accused of leaving communities isolated through mass branch closures since the financial crisis.
About 6,000 sites have been closed over the past nine years as part of cost-cutting measures that lenders say reflect the shift from branch-based operations to digital banking.
Critics accuse the industry of neglecting rural communities and vulnerable people, such as the elderly, who are much less likely to be tech-savvy.
The industry data, released separately on Wednesday, confirmed banks’ assertions that habits are continually changing as new services come online thanks to investment.
UK Finance’s UK Payment Trends 2023 report showed that cash remained the second most popular payment method despite falling to six billion transactions, or a 12% share.
The data showed that 38% of the total $48 billion were contactless payments.
For its part, the FCA said it was not unduly concerned about the situation regarding access to cash, with a growing number of so-called banking centres and generic postal services filling much of the void left by branch and ATM closures.
Its report found that by June 2023, 95% of the UK population were within a mile of a free cash withdrawal point, such as ATMs and Post Office branches, and 99.7% were within 3 miles of such a point.
However, Sky News reported in May that lenders were reluctant to allow the Post Office – widely criticised for its treatment of sub-postmasters in the Horizon IT scandal – demanding more than the current £200m it receives each year in fees charged to bank customers to use its sites for basic services.
Sheldon Mills, executive director of consumer and competition at the FCA, said: “Three million people continue to rely on cash, even as digital payments become more popular. And many small businesses still need somewhere to safely deposit their takings every day.
“That is why we have acted quickly in response to the new powers given to us by Parliament to ensure reasonable access to cash withdrawals and deposits is maintained.”
Adrian Buckle, head of research at UK Finance, said: “Consumers have a huge choice when it comes to payment methods, but we can clearly see the continued popularity of debit cards and contactless payments.
“This has been driven by both consumer demand and new technologies that are helping to increase acceptance levels, particularly among small businesses and mobile businesses.
“Contactless mobile payments are growing rapidly and a third of adults now make them at least once a month, with room for growth.
“This does not mean that we are on the verge of becoming a cashless society. Cash remains the second most widely used payment method in the UK, even though overall we are using it less and more people are living largely cashless lives.
“Over the next decade, we expect the long-term trend of declining cash usage and growth in some other payment methods such as cards and faster payments to continue.
“We also expect to see new developments in the payments landscape that will improve the customer experience.”