They do that through the Banking Code, now in its eighth edition, which sets down the rules on how the banks, building societies, and credit card providers treat their customers. The Code specifies what information the banks give customers about their products, how they tell them about changes to interest rates, and how they respond to customers who are in financial difficulties.

From November new European rules mean that the FSA will have to take over regulation of the money transfer system including direct debits and the clearing system. The new regime will also include most aspects of current accounts will cover altogether about 40% of the items in the Banking Code . So the FSA has seized the moment to take over the lot. In future banks which fail to meet the FSA’s rules – including an overriding principle to treat customers fairly – could be fined. All the BCSB normally does is to have a quiet word and hope the bank changes its procedures.

Despite its lack of powers the Banking Code has introduced important improvements in the way banks treat their customers. It sets out the timetable for moving your account from one bank to another. It lays down the rules which make cash machines show clearly if there will be a charge for getting your own money out. It introduced summary boxes which set out clearly the terms and conditions of credit cards and in October 2008 extended them to savings accounts and unsecured loans. It has made the banks promise that people with poor credit records have access to at least a basic bank account if an overdraft or cheque book is not suitable. And the banks have at last agreed to consider if people can repay their debts before they are lent more money.

When the FSA takes over regulation there is a danger that these detailed provisions of the Code will be lost. For example, it took years of negotiation to persuade the banks that they should inform their customers when they cut the interest rate paid on savings accounts.

The banks resisted this move because they make a lot of money from people not knowing. The best savings accounts can pay 6% a year or more while the worst pay 1% or less. The average is around 3%. The banks lure customers into an account with a high rate then cut it later hoping no-one will notice. At one time the only warning they had to give was an advert in The Times or a poster in the branch. But under the Code the banks promise they "will keep you informed about changes to the interest rates on your accounts."

Unfortunately that promise is weakened by the detailed rules. Customers are only notified by a personal letter or email when the rate changes in two specific circumstances

Despite these holes it is better to have rules that all the banks follow rather than none. But the FSA believes in what it calls ‘principles based regulation’. In other words the firms it regulates must conform to overriding principles rather than comply with a long and details set of rules on what they should do and how they should do it.

Two principles of particular importance are that a firm must treat its customers fairly and must communicate with them in a way which is clear, fair and not misleading. Without a Code explaining what behaviour would comply with those rules there is a danger that each bank would be free to argue individually with the FSA what level of information does or does not fulfil its obligations. With each bank following its own rules, customers would not know what to expect or whether the bank was conforming to the rules or not.

So there could still be a place for a smaller Banking Code to fill in – and hopefully tighten up – these details. That is already planned for the rules on credit cards and personal loans – including the Summary Box which sets out the terms and conditions before the customer applies for the product. Consumer credit is regulated by the Office of Fair Trading and the FSA is not – as yet – planning to add them to its empire.

And the FSA says it is not against such guidance covering such things as basic bank accounts, moving accounts from one bank to another, cash machine charges, and interest rate changes.

Anyone can comment on the plans. The closing date is 16 February.

Throughout this article ‘banks’ includes building societies and credit unions as well as companies that issue credit cards. The Code only applies to its 119 members. Some smaller organisations – including all but one of the independent cash machine operators – are not members and are not covered by the Code. Non-members are not covered by the Code but they will be regulated from 1 November.