Shares in Hargreaves Lansdown PLC (LSE:HL.) and AJ Bell PLC (LSE:AJB) slumped near-9% respectively after the Financial Conduct Authority (FCA) warned investment platforms over the practice of charging to hold people’s cash and then accruing interest on it, so-called 'double dipping'.
The FCA said customers may not be receiving fair value as brokers essentially gained two means of income from their uninvested funds.
This comes after scrutiny of such firms earlier this year over their poor rates of interest offered to customers in spite of the bank rate rising to 5.25%.
Both Hargreaves and AJ Bell have enjoyed strong profits over the past year on the practice, driven by keeping the difference between what they pay in interest to customers and what they receive from banks through depositing consumers' funds.
“Rising rates mean greater returns on cash,” FCA consumer executive director Sheldon Mills explained.
“Investment platforms and self-invested personal pension operators need now to ensure how much of the interest they retain and, for those who are double dipping, how much they’re charging customers holding cash, results in fair value.
“If they cannot make that case, they need to make changes. If they don’t, we’ll intervene.”
A recent survey of 42 firms found that the majority kept interest earned from customers’ cash balances, the FCA said on Tuesday.
This may not “reasonably reflect the cost to firms of managing the cash”, the regulator added, setting a deadline of 29 February 2024 for the issues to be fixed.
Shares in Hargreaves fell 8.6% to 699.4p, while AJ Bell slipped 8.8% to 284.2p.