Banks could be blocked from closing branches through FCA legislation

The Financial Conduct Authority (FCA) is considering regulations that could give it the power to block the closure of bank branches to ensure people are not left without easy access to cash.

According to a report in the Financial Times, the power could be brought in as part of HM Treasury’s plan to ensure the FCA can guarantee “reasonable” access to cash for the public. This would mean face-to-face availability as well as ATMs.

Citing an unnamed source, the FT revealed that the FCA could have new powers that “will allow [it] to say, ‘If there aren’t good enough face-to-face services in place, we can block [branch closures]’.”

Banks have been slashing the number of branches they operate over recent years as they aim to reduce their operational costs and move customers to digital services.

This all began during the global financial crash in 2008, when banks were hit by huge losses. In more recent years, this has accelerated as banks face intense competition from digital-only banks, which operate on a relative shoestring.

The Covid-19 pandemic, which moved more people to digital channels while branches were closed, then supercharged closure strategies. In June, Lloyds Banking Group has said it will close a further 44 branches this year, including sites in London, as the industry moves customers to digital channels, for example.

Following the latest closures announced by Lloyds, the Unite union accused the bank of “walking away from local communities”.

When HSBC recently announced it was closing 82 branches, it said the pandemic had “crystallised its thinking” in terms of reducing reliance on its branch network to serve customers.

Technology has enabled the banks to shutter branches and move customers to digital channels. According to a report by the Economist Intelligence Unit (EIU) for financial services software firm Temenos, 65% of executives believe the branch-based banking model will be dead in five years’ time.

The latest technologies such as cloud, artificial intelligence (AI) and application programming interfaces (APIs) are seen as the drivers of this transformation, according to two-thirds of the senior banking executives who responded to the survey.

The UK is not the only country where bank branch networks are being decimated. In Spain, the BBVA is making more than 2,000 staff working in its branch network redundant as it closes 480 branches in the country – and this was a reduced number after pressure from politicians.

After an initial cost of €960m, the bank said it should save an estimated €250m a year from 2022. BBVA said the increasing use of digital channels and competition from digital banks, with low-cost bases, were major factors in its decision.

Meanwhile, Germany’s second biggest bank, Commerzebank, is closing more than 340 branches and slashing one-third of its staff – around 10,000 workers – to cut costs.

Sweden’s Handelsbanken said it would cut its branch network by nearly half, while a merger at France’s Societe Generale, with the coming together of its retail business and Credit du Nord subsidiary, will see 600 of its 2,100 branches close.