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Financial Services Authority promises a new deal for current account holders when it takes over banking regulation in November
Banks that mistreat consumers could be hit with fines and named and shamed after the City watchdog takes over control of retail banking from November.
The current voluntary banking code, which offers banks guidance on how to behave towards customers, will end and banks, building societies and credit unions will have to obey new rules laid down by the Financial Services Authority (FSA), reinforced by fines for organisations that flout the regulations.
One of the new rules says "service must remain prompt, efficient and fair for the duration of the relationship". Many banks have been criticised for treating new customers better than existing account holders.
The FSA said the move would provide a new deal for savings and current accounts customers. It will back up its powers with an 80-strong "conduct risk team" that will carry out mystery shopping.
The FSA says the move to a rules-and-fines regime will give consumers new protection. It has promised to:
• force banks to provide a prompt and efficient service to help customers switch accounts, including setting minimum speeds.
• make sure that cash Isas are transferred speedily.
• provide better and earlier information. Under the banking code, some material about a bank's products and services is only communicated to people once they become customers.
• make sure the quality of customer service is maintained long after the customer is new.
• insist banks treat customers fairly, including when dealing with those in financial difficulty and when processing payments.
The rules on Isa transfers will be welcomed by consumers who have experienced long delays at the hands of banks, including Abbey and Barclays, and have found that their complaints under the banking code achieved little.
The move to offer better product information will mean people receive details when deciding whether or not to become a customer so they can choose the best account, and find out how to use it most effectively.
The banking code did not have the power to fine, which is seen as essential to keeping banks in order, although on rare occasions it "censured" banks and building societies.
"The greater enforcement powers of the FSA compared with the Banking Code Standards Board will also have a deterrent effect that was missing in the codes," said Jon Pain, the FSA's retail managing director.
"The FSA can, and will where appropriate, fine firms if they fail to comply with the new rules to the detriment of their customers.
"This won't be box-ticking. We'll be actively testing the market including the sales process, advertising, promotions and how banks communicate with customers."
Pain added: "These are important new standards that firms will need to meet. They will affect consumers' everyday interaction with banks. Retail banking is the last consumer financial area where self-regulation has been in force.
"This will bring clarity to the market place for consumers so they can get better deals. But it will also give the banks enforceable lines on how they behave to customers rather than the present voluntary guidelines."
Before the new rules come into force the FSA will publish comprehensive information for consumers detailing their rights and outlining what they can expect from their bank or building society.
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