LONDON (Reuters) - The Financial Services Authority warned banks they must start treating customers better by the summer or face repercussions from UK and European regulators.
Martin Wheatley, managing director of the FSA, said banks were still not "fully engaged" in providing top quality core services and were making it harder to restore public trust after being bailed out by taxpayers.
"We wrote to all banks in January to encourage a more proactive approach," Wheatley said in a speech on Thursday night and available to the media on Friday.
Customers still cannot access their money quickly because banks are slow to ensure that payments reach an account by the end of the following business day, Wheatley said.
It was also difficult to cancel regular payments, such as magazine subscriptions.
"I cannot understand why something as straightforward and helpful to the customer as this, is so hard to do," he said.
The UK Payments Council, an industry body, said the rule on following day crediting of accounts came into force at the start of January, but has been flagged for several years and is the responsibility of individual banks to enforce.
Wheatley will head Britain's new Financial Conduct Authority (FCA) as part of a supervisory shake-up in the first half of next year when the FSA will be scrapped.
"We will publicise our findings and our expectations in the summer and take any appropriate action with specific firms," Wheatley said.
Banks will face competition from non-banking operators and the European Union is likely to propose legislation unless lenders improve their service, he added.
The FSA and its successor, the FCA, will be far more willing to crack down on bad products and end mis-selling scandals that stretch back two decades or more.
Wheatley said banks have paid out 3 billion pounds so far for mis-selling payment protection insurance and the watchdog is examining concerns raised by small businesses who bought interest rate swaps from banks.
"If we find evidence of breaches of our rules or mis-selling, we will take action," Wheatley said.
In future, the FCA will interview candidates for top conduct jobs at financial firms, while the new Prudential Regulation Authority at the Bank of England will interview candidates for roles that manage a lender's capital buffers.
"We may have joint interviews for the chairman and chief executive and we will try to communicate decisions together to firms," Wheatley said.
Editing by David Cowell