BCOBS: Use Of The Right Of Set-Off

The information requirements set out in the Banking: Conduct of Business Sourcebook ("BCOBS") in relation to the exercise of the right of set-off were last updated in 2011. However, in light of queries on the use of the right to set-off we have recently received from our clients we thought it would be useful to remind all those providing retail banking services of the relevant requirements.

BCOBS provides guidance on two areas in relation to set-off: (i) information that should be given to retail customers about set-off; and (ii) fair treatment of customers where the right to set-off is or is proposed to be exercised.

BCOBS Chapter 4: Information to be communicated to banking customers about set-off

Under the information rule BCOBS 4.1.1 R, a firm must provide or make available to a banking customer appropriate information about a retail banking service and any deposit made in relation to that retail banking service:

(1) in good time;

(2) in an appropriate medium; and

(3) in easily understandable language and in a clear and comprehensible form:

so that the banking customer can make decisions on an informed basis.

In order to ensure compliance with the above rule, BCOBS requires of firms the following:

(1) To provide to the retail customer (and where a joint account is involved, to the joint account holder) an explanation of the nature and extent of the rights of set-off in good time before the customer is bound by the contract for the retail banking service.

This information can be incorporated into the account terms and conditions and there is no need to provide it in a separate document. Handbook Notice 107 sets out the expectation of the Financial Services Authority ("FSA") that firms provide meaningful information in plain and intelligible language to explain the right, and how it applies and can be used in the context of the banking relationship.

(2) To provide (i) on the first occasion and (ii) where appropriate, on any subsequent occasion that the firm proposes to exercise a right of set-off, general information in relation to the nature of the right of set-off and the generic circumstances in which the firm may rely on that right within a reasonable time beforehand.

In Handbook Notice 107, the Financial Conduct Authority ("FCA") explained the policy intentions for the information to be given at a time when it is relevant to the customer's circumstances and the exercise of set-off is in prospect as opposed to the provision of such...