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As concerns over a 'Jersey premium' causing extra pain for already hard-hit islanders continue, the financial services regulator has now stepped in with a direct address to bank CEOs.
The Jersey Financial Services Commission has written to the leaders of institutions operating locally to ensure that interest rate pricing and account closure policies provide a "transparent and fair experience for customers".
"We expect the banks to ensure they individually and collectively are explaining to customers why products available in the UK may not be available to customers in Jersey, or may be priced differently," the JFSC said.
"This information should be transparent and easily accessible through all customer communication channels, including appropriately trained staff who are able to accurately provide answers to queries raised in this respect."
Pictured: The Jersey Financial Services Commission (JFSC) is the financial services regulator for the island.
The financial services regulator reviewed how banks are adapting their processes for dealing with customers, customer literature and staff training to ensure they can support their customers in this more challenging environment, including when decisions are made to close or decline accounts.
The letter followed concerns raised by the Consumer Council about islanders routinely having to pay significantly more for goods and services than those living in the UK.
Research using data sourced by financial services firm Integritas Wealth Partners, an investment business authorised and regulated by the Jersey Financial Services Commission, showed that an islander with a 25-year, £300,000 mortgage – on a two-year fixed-rate – would be paying around £200 more each month with HSBC locally than if they were doing so with HSBC UK.
Using the same comparison, islanders would also be paying around £380 more and £260 more with Santander and Lloyds respectively than they would be with the banks’ UK counterparts.
Several major banks in the mainland have also been cutting rates to drum up new business, with the UK’s biggest mortgage lender, Halifax, introducing reductions up to 0.83 percentage points – including cutting its two-year fixed-rate remortgage from 5.64% to 4.81%.
This means someone taking up the new rate on a £200,000 25-year mortgage could be saving more than £1,000 a year on their repayments.
In January, then-Assistant Chief Minister Elaine Millar, who had political responsibility for financial services, said the Government was in discussions with banks “to encourage them to be as competitive as possible”, while then-Housing Minister David Warr also urged lenders to lower their rates.
At the time, Jersey Consumer Council Chair Carl Walker said that the situation was another example of islanders paying “a Jersey premium” and questioned whether regulators could “investigate” the difference.
“Even if they don’t find anything unusual, they could at least reassure islanders that they are being treated fairly,” he explained.
“It’s only fair to question lenders as to why, when their lending rates are ultimately based on the Bank of England base rate, they are charging their customers in Jersey so much more than their customers in the UK.”
Pictured: Carl Walker, Chair of the Jersey Consumer Council. (Rob Currie)
In March, the Consumer Council wrote to Jersey’s main mortgage providers to ask them to explain why islanders are being charged a “Jersey premium” on their mortgage rates for “no rational reason”.
Santander, NatWest, Barclay’s, HSBC, Lloyds and Skipton were all found to have at least a one percentage point or greater added to their local five year fixed rates compared to the UK rate.
Leeds Building Society, HSBC UK, Barlays and Santander are also among the lenders to have announced cuts on their products at the start of 2024, giving homeowners a glimmer of hope after the Bank of England maintained interest rate levels, following 14 hikes in two years in a bid to stem rampant inflation.
However, mortgage adviser Peter Seymour said at the time that this did not necessarily mean banks in the island would follow suit.
In a letter dated 15 April 2024, the JFSC said that "recent economic circumstances mean that customers face higher or increasing charges for mortgages or personal borrowing, which may impact customers’ potentially strained household finances".
The JFSC analysed how quickly the retail banks passed on interest rate increases to savers, concluding that the rates passed on to savers have not increased quite as rapidly as those on lending products.
The financial services regulator praised the fact that some banks have also issued new products with more attractive rates on instant access and fixed rates accounts, but raised concerns that it "can be difficult" for customers to switch savings products easily to benefit from new offers.
"We expect banks to consider what investment is needed in digital channels to address any barriers to achieving this," the letter said.
The JFSC said that "most retail banks in Jersey have assured us that their practices are generally in line with the UK’s Mortgage Charter".
The financial services regulator welcomed the support mechanisms that banks have put in place for customers who may experience financial difficulties, claiming that "evidence suggests this has not developed into a significant issue".
However, the JFSC noted that 80% of mortgages are on fixed terms with around 15-20% of those set to mature in 2024, adding that "banks will need to maintain their monitoring of the situation".
Pictured: The JFSC called for banks to be "more transparent regarding the support they offer".
The financial services regulator also called for banks to be "more transparent regarding the support they offer".
The JFSC found that half the banks have "clear, easy to find guidance on their websites with contact details of a specialist to speak to", and confirm they are aligned to the UK Mortgager Charter.
However, of the others, two indicate they offer just two options of support, while one does not advertise support at all.
"We expect banks to provide transparency on their websites on options available to customers who experience financial difficulties or wish to manage their finances efficiently," the JFSC said.
The regulator also found that "the consequences of poor decision-making and poor handling of account declines or terminations can lead to certain sectors of the Jersey population finding it difficult to obtain banking services".
Pictured: "The consequences of poor decision-making and poor handling of account declines or terminations can lead to certain sectors of the Jersey population finding it difficult to obtain banking services."
The JFSC explained that banks should provide reasons to customers as to why they may be terminating their bank account, and support customers should they wish to appeal such a decision.
Banks should also give customers adequate notice and enough time to challenge a closure decision or to find a replacement bank, the regulator said.
Concluding the letter, the JFSC called for bank CEOs to "carefully consider the contents of this letter and take necessary steps".
The financial services regulator said it will " write to banks in due course to ask them to demonstrate that they have appropriate conduct risk management information and are monitoring the quality of products and services they offer to Jersey customers".
In the meantime, the JFSC will continue to monitor how banks make information available on their website and assess how banks ensure they are providing adequate standards of service.
Last week, the UK recorded its lowest rate of inflation for two-and-a-half years, partly fuelled by a decrease in food inflation which the British Retail Consortium said should filter through to Jersey. Announced last week, the UK’s Consumer Prices Index – the government’s preferred measure of the cost of living – rose by 3.2% in the 12 months to March, down from 3.4% in the 12 months to February. While inflation was still falling slower than expected, it was the lowest rate since September 2021.
The rate is expected to fall further next month, with the governor of the Bank of England forecasting “quite a strong drop” to the government target of 2%.
The regulator said it will update analysis of interest rates if the base rate falls to "monitor how banks take decisions and ensure customers are treated fairly in those circumstances".
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