BANKS will be blocked from closing branches and could receive financial penalties running into hundreds of thousands of pounds if they fail to comply with new rules over the public's right to cash, the financial regulator has warned.

They have been warned that they should consider communities when considering even cutting branch hours or closing free-to-use ATM while the Financial Conduct Authority says will block closures it was unhappy with.

Banks would be fined as a last resort with final penalities decided on a case by case basis.

The financial regulator has revealed that it has already put a stop to several bank closures through its supervisory work.

In a tougher set of new guidance, the financial regulator has said told banks they expect banks to assess how planned closures, either full or partial or ATM closures will affect customers, particularly those in vulnerable circumstances, and to make appropriate arrangements to ensure their needs are still met.

This includes assessing what alternative banking service there is in place to meet their needs.

It said that their expectation extends to any moves to reduce the hours of banks.

Where the need for an alternative is identified, firms should make sure it is in place and accessible before a branch closes, is reduced in hours or an ATM is lost.

The FCA said this will help prevent customers from being impacted by a gap in service.

In September 2020, the financial regulator required banks to make thorough checks on the impact of permanent branch and free cash machine closures and provide it with the analysis.

The Herald: .. (Image: .)

And it found that in some cases they had seen firms making decisions to remove facilities such as counter services from branches, or to permanently and significantly reduce the hours that branches are open, rather than fully closing branches.

New guidance which is immediately effective is aimed at helping prevent a gap in services to customers.

More people are banking online, prompting banks to cut the number of branches, but the FCA said that about a fifth of adults with a day-to-day account regularly used a branch over the past 12 months, particularly vulnerable adults or those in financial difficulty.

As more people use contactless cards to pay for small items and meals, 6% of adults still use cash to pay for everything, the FCA said.

The regulator has told the Herald that it has the teeth to enforce the guidance with fines at a last resort that can reach hundreds of thousands of pounds.

"This is about how the regulator looks at bank closures and ensure communities are properly considered," said an FCA source.

"This guidance includes partial closures and reduction in service hours. They have to ensure alternatives in place. "

The FCA said there were sanctions if banks do not meet their expectations.

The Herald: .. (Image: .)

"If they plan to partially close five banks in, say Aberdeen, we need to see a plan and programme to do it and it needs to ensure there is some kind of alternative that could involve banking hubs.

"We are able to pause things. We can put a hold on it."

FCA said that if banks do not act they could take supervisory or enforcement action with potential financial penalties.

"We prefer to get solutions and then customers or consumers are better protected," the source said.

Access to money concerns has continued to surface as it emerged nearly half (47%) of the over 1000 bank branches which were open in Scotland seven years ago will have shut by the end of 2021.

And cash machine use in Scotland slumped by nearly half in two years and is not returning to pre-pandemic levels.

Data showed that there were 93m withdrawals in 2021 while there were 175.7m in 2019, before Covid hit the nation.

Data indicated that the average Scot was withdrawing £1,578 per year in 2021 compared to £2553 before the pandemic - a nearly 40% decline.

Sheldon Mills, executive director for consumer and competition, said: "We know that the way people use banks is changing. More and more people are managing their finances online – and we want banks to support more people to get the benefits of innovative digital services. However, we know that for many, having a branch or ATM nearby their home is an essential part of looking after their household finances.

"The industry must make sure they are supporting people and businesses who rely on cash and banking services. That is why we’ve published updated guidance for banks that are considering branch closures and reminded them that we want alternatives, such as banking hubs, delivered quickly and as a priority."

Scotland has been at the centre of trials of the banking hubs, described as a "new model for high street banking" to boost access to cash and is expected to by rolled out to communities hit by bank closures around the UK.

Funded by the banking industry, it comes in the form of brand new five-banks-in-one hub hosted by the Post Office that has been tested in pilot locations in Cambuslang and Rochford in Essex.

Some 13 new hubs are now expected in locations including Brechin in Angus, Forres in Moray, Carluke in Lanarkshire and Kirkcudbright in Dumfries and Galloway as well as Axminster in Devon, Barton-upon-Humber in Lincolnshire, Lutterworth in Leicestershire, Royal Wootton Bassett in Wiltshire, Cheadle in Staffordshire, Belper in Derbyshire, Maryport in Cumbria and Hornsea in Yorkshire.

A spokesman for UK Finance, the voice of the banking and industry. said: “While many customers are opting to use mobile and online banking to manage their money, the banking industry is committed to ensuring that people can do their banking face to face too.

"Whenever a bank branch closes, LINK [the ATM network group] independently assesses the local community’s cash access needs and will commission any new services required, which can include a banking hub. Hubs have been announced so far and the industry is fully behind getting these up and running as quickly as possible. In addition, customers can do their day to day banking at thousands of Post Offices across the country.”