Cascade Commentary

FSCS – Direct vs Indirect Model

August 2021

By Dr Emma Black

Increasing volumes of deposits are being placed with banks and building societies via Deposit Aggregators, such as Cascade Cash Management. Deposit Aggregators are providers of intermediary services who sit between savings account providers (i.e. banks and building societies) and retail customers. Business models vary for Deposit Aggregators, and typically there are two types of models:

  • A Direct Model – this is where customers also become direct customers of the savings account provider, with onboarding conducted by the bank or building society in question. This is the model we follow here at Cascade Cash Management, providing our customers with the strongest regulatory and depositor protection available.
  • A Trust Model – this is where the Deposit Aggregator holds the deposit accounts on trust for their customers, who do not become direct customers of the savings account provider.

Deposit Aggregators can be paid by the savings account provider and/or the customer. Here at Cascade, we are only paid by the customer to ensure our obligations remain unfettered with any banking relationships. To our knowledge we are the only Deposit Aggregator that does not receive payments from banking providers. While the models may vary, most Deposit Aggregators keep customers informed of changes in their savings rates, offering a convenient solution to allow their customers to spread deposits around different banking providers to take advantage of better rates while also maximising FSCS protection for high balances too.

Deposit Aggregation is a relatively new but growing part of the sector and there are many benefits that they promote and make accessible for their customers. They typically promote competition and innovate to find new ways to improve the savings experience of customers in the banking sector.

 In April 2021, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) wrote to savings account providers to ensure customers receive the right amount of information when using a Deposit Aggregator. The first key focus is in regard to depositor protection. Customers who place their deposits via a Deposit Aggregator on a Trust Model may not understand how this protection can differ from a direct relationship. The regulators write: “(Customers) may not know that in the event of a bank or building society failure, FSCS payments can take longer for deposits placed via a Deposit Aggregator under the trust model”. This is important to ensure all customers are aware of the differences. Cascade operates on a Direct Model to ensure our customers have the greatest level of depositor protection available to them. It is important to know the differences and ensure that you fully disclose all cash holdings to a Deposit Aggregator so that you are able to ensure that you do not place more than £85,000 per any one banking licence.

The second key focus of the communication is in regard to the Deposit Aggregator acting as an agent of the savings account provider, promoting deposit accounts with a view to attracting deposits to the savings account provider’s balance sheet. Importantly, Cascade is a whole of market independent solution meaning that we are agnostic over which savings account providers a customer chooses to place their capital with. We provide information based on a customer’s requirements and preferences and ensure that they remain up-to-date on other rates available to them based on the same inputs.

We remain focussed on providing the very best outcomes for our customers based on their preferences and needs. Should we be able to provide any more information on this regulatory communication and the benefits of a Direct Model approach, please do speak with our team and they’ll be happy to discuss this with you in greater detail.

To read the PRA and FCA Dear CEO letter please click here.

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