UK: BCOBS: Use Of The Right Of Set-Off

Last Updated: 12 July 2013
Article by Aleksandra Cison

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 information at an unduly early stage.  For these reasons, the FCA considers a reasonable period to be 14 days before the firm seeks to exercise its right to set-off. 

BCOBS is not prescriptive as to how the information is presented and allows for it to be incorporated in a communication to the customer about something else.  However, firms should ensure that the relevant information is not hidden so as to get lost in small print. 

The information does not need to be given on each occasion that a firm proposes to use its right of set-off.  Whether or not the information will need to be provided on subsequent occasions will depend on individual circumstances and in particular the amount of time that has elapsed since the most recent time that the information was provided to the customer.

(3)   To provide prompt notification to the customer where it has exercised a right of set-off which should identify the date when the right was exercised and the amount debited.

Handbook Notice 107 defines "prompt" as meaning without delay.  The FCA normally expects firms to notify customers of the use of set-off on the same day or the next working day.  A notification needs to be provided on each occasion that the right of set-off is exercised. 

BCOBS Chapter 5: Right of set-off is to be used in a way that is fair to customers

Under BCOBS 5.1.1 R, a firm must provide a service in relation to a retail banking service which is prompt, efficient and fair to a banking customer and which has regard to any communications or financial promotion made by the firm to the banking customer from time to time. In addition, under Principle 6 a firm must pay due regard to the interests of its customers and treat them fairly.

In order to ensure compliance with the above obligations, BCOBS requires a firm on each occasion where the firm proposes to exercise a right of set-off:

(1)   to review the information available to the firm in relation to the customer's account and leave the customer with an amount of money that the customer requires to meet their essential living expenses or priority debts (whether owed to the firm or a third party); and

(2)   to refrain from setting-off against any sums where the firm knows or reasonably ought to know that a third party is beneficially entitled to that money or that the customer is a fiduciary in respect of that money, or where the customer has received that money from a government department, local authority or NHS direct payment body for a specific purpose or is under a legal obligation to a third party to retain and deal with that money in a particular way.

If following the exercise of a right of set-off, it becomes apparent that the firm has set off a debt in breach of the above guidance, the firm should refund the money to the customer unless it is fair not to do so.  If no refund is made, the firm must be able to justify that it is fair not to do so and should also consider taking other remedial action.

In Handbook Notice 107, the FCA explained that firms are not expected to spend time estimating a subsistence balance if it is clear that sufficient sums will be left over in the account after a set-off has taken place.  The key is that firms do not use set-off on funds that are intended for purposes such as health or social care payments providing however that the firm has sufficient information regarding the use of funds deposited in the customer's account.  To this end, the FCA expects firms to keep record and consider information provided by customers about the intended use of the deposited moneys. 

BCOBS does not specify a minimum sum of money that should be left in the account or a maximum ratio of set-off on the basis that such approach would be inflexible and could have the effect of discouraging firms from considering set-off circumstances on an individual basis. 

We are happy to provide further information and guidance, so please feel free to contact us if you have any specific queries or concerns regarding the set-off provisions in your standard terms and conditions or the procedures applied within your organisation in relation to the exercise of your set-off rights.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions