HSBC UK Bank Plc · DRN-6238512

The complaint Mr S complains about the interest rate HSBC UK Bank Plc trading as first direct (“First Direct”) has paid on an ISA he held with it. What happened In March 2008, Mr S opened a Cash ISA with First Direct, intended as a long-term investment. In October 2023, Mr S checked his account to find that the interest rate on the ISA hadn’t increased in line with how he expected it to, in relation to external rates and market conditions. This was particularly because of the introduction of the Financial Conduct Authority’s Consumer Duty into regulation on 31 July 2023, which said that firms like First Direct need to ensure their products provide fair value. Mr S noted that the rate on his account was 2.85% when the Bank of England base rate was 5.25% and several other market rates (for example, the LIBOR and SONIA rates) were all above 5% too. First Direct responded to Mr S’s complaint to say that it knows that it doesn’t always offer the best rates in the market, but it does aim to protect the rates it offers customers. It clarified that while its interest rates are influenced by the Bank of England base rate, they aren’t directly linked to this. Mr S wasn’t happy with its response and so he referred his complaint to this service where one of our investigators looked into it for him. They found that First Direct had acted fairly in respect of the interest rate on Mr S’s account, both before and after the introduction of the Consumer Duty. The investigator found that First Direct had made Mr S aware of the rate he was receiving and had applied it in line with the terms and conditions of the account. In terms of the level of the rate, the investigator found that First Direct was entitled to set the rate and that the terms of the account were clear that this wouldn’t ‘track’ or follow external rates such as the ones that Mr S referred to. Instead, the terms and conditions gave First Direct discretion as to when it might vary the interest rate on the account and for what reasons. The investigator noted that, in any event, the rate on the account wasn’t an outlier in respect of those rates being paid across the market at the time. Mr S disagreed, saying (in summary) that the account clearly hadn’t provided fair value and that the significant discrepancy between what it paid and the 5% level in the market was evidence of that. He maintained that the account wasn’t fair value in the context of the aims of the FCA’s Consumer Duty and so the complaint was referred to an ombudsman to decide. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. As our investigator has explained, the points Mr S is raising around the FCA’s Consumer Duty are only relevant from 31 July 2023 onwards. The Consumer Duty was introduced on that date and wasn’t retrospective. So, in respect of Mr S’s concerns about the

-- 1 of 3 --

rate before this time, there was no requirement or obligations on First Direct to set its interest rates at any particular level or to justify its rates. First Direct was entitled to decide on the rates it paid on its products and it wouldn’t be for this service to interfere with that commercial judgement. In respect of First Direct’s other obligations before 31 July 2023, I’ve taken account of its requirement to pay due regard to the interest of its customers and treat them fairly, along with its obligation to meet customers’ information needs clearly, fairly and in a way that is not misleading1. Here, I’m satisfied that First Direct has done that. It has made the interest rate available to Mr S when logging onto his online banking and has explained how the account would operate in the relevant terms and conditions of the account. Many of Mr S’s concerns relate to the disparity between the rate he received on the account and external market rates. However, Mr S’s account doesn’t track or follow any external rates. I think the terms of the account are clear about this when they say: “This agreement doesn’t have an agreed end date. As it may last for a long time, we’re likely to need to make changes to it to take account of certain things. For example, how we develop our services, how our business changes and when things happen that we don’t control. We’ll only make changes for these reasons if it’s reasonable for us to pass the impact of that change on to you. As we can’t predict precisely why we might need to make changes to this agreement, we may also make changes for reasons that aren’t covered here.” The terms then list several situations where First Direct might change the interest rate. I’ve included the relevant ones below: “Changes we don’t control” “Changes in the Bank of England base rate, other market rates and indices or tax rates.” “Changes for other reasons” “There may be changes that need to happen for other reasons that we haven’t mentioned in this table. We’ll make those if it’s reasonable or valid for us to do this.” “Other changes” “Sometimes we’ll make changes without giving you a reason. If we do this, we’ll always explain the effect of these. You’ll always be able to close your account or service free of charge before the changes happen.” Ultimately, I think the terms here are clear, fair and not misleading about how the account would operate in this respect. It’s clear that while First Direct may consider certain factors like those Mr S mentions, it ultimately has the discretion to vary the rate on this account – rather than an obligation to do so. While other ‘tracker’ type accounts are offered in the market and are structured around following the fluctuations of external rates, this account isn’t structured in the same way. The rate has varied from time to time on this account and so I’m satisfied that First Direct has operated the account as it explained it would. 1 PRIN 2.1.1R 6 + 7, https://handbook.fca.org.uk/handbook/prin2

-- 2 of 3 --

So prior to 31 July 2023, I’m satisfied that First Direct has acted fairly. But as of the 31 July 2023, the FCA’s Consumer Duty was introduced into regulation. This was a higher set of standards for consumer protection which included the requirement for firms to assess their products as providing fair value. However, the FCA was clear that it isn’t the intention of the Consumer Duty to set prices and it clarified that its rules do not have this effect2. Nor do these rules have the effect that First Direct should pay Mr S the best rate for the product, or the same rate as other firms. Mr S has said that he wants a precise answer to the question of whether First Direct was providing him with fair value when it was paying a rate of 2.85% - when prevailing market conditions saw rates of 5%. However, it’s not the role of this service to decide whether a product is or isn’t fair value, or to decide whether a business has met its regulatory obligations. Instead, I have to decide what’s fair and reasonable in all the circumstances of a complaint and to do so, I take account of the fair value outcome of the Consumer Duty as relevant rules and regulations here. In line with this requirement, First Direct has provided a summary extract from its assessment of the value of this product in confidence to this service. Having considered this, I am satisfied that it has taken account of the price and value considerations mentioned. I’d add that what constitutes fair value isn’t just about price and needs to take the account of the overall product itself3 - so not just the interest rate (although that is a key feature of a product like this). Here, the rate around the times complained of was between 2.70% and 2.85%, which wasn’t far below the market averages at the time. There are no penalties or fees to pay if Mr S decided to move his savings elsewhere (as he eventually did in 2025). This is an important consideration when thinking about the value of an easy access account like this one – where there is an onus on customers to make sure their account is meeting their needs in a competitive market. Mr S points out that many savings accounts paid higher interest rates than First Direct did. Equally though - others paid less and so the account isn’t an obvious outlier in a way that would suggest it provided a bad outcome for Mr S – even if I realise he’ll see it differently. So while I can understand his concerns here, I’m satisfied that First Direct has acted fairly and reasonably. My final decision I do not uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr S to accept or reject my decision before 27 April 2026. James Staples Ombudsman 2 See FG22/5 Final non-Handbook Guidance for firms on the Consumer Duty, 7.4, https://www.fca.org.uk/publication/finalised-guidance/fg22-5.pdf 3 See FG22/5, 7.2 and 7.3

-- 3 of 3 --