In-depth UK retail banking competition investigation to begin, CMA confirms

Out-Law News | 07 Nov 2014 | 4:28 pm | 2 min. read

The UK's competition regulator is to begin an in-depth inquiry into whether there is effective competition amongst banks that offer personal current accounts and retail banking services to small businesses, it has announced.

The Competition and Markets Authority (CMA) provisionally announced its plans to carry out a full market investigation in July, and will now proceed following support from "most respondents" to its consultation. The investigation will also consider whether commitments made by banks providing services to small and medium-sized enterprises (SMEs) following a 2002 report by former regulator the Competition Commission continue to be effective, according to the announcement.

"Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses and the wider economy," said Alex Chisholm, the CMA's chief executive.

"After carefully considering the consultation responses, most of which supported a market investigation, we remain of the view that there should be a full market investigation into the sector, conducted by a market reference group drawn from the CMA's expert panel of independent CMA members. The Market Reference Group will investigate in detail and decide what action, if any, may be needed to improve competition for the benefit of personal and small business customers," he said.

The CMA said that it was still concerned about the low numbers of customers shopping around and switching current account providers; and how difficult it was for customers to compare products, particularly given the complexity of overdraft charges on personal current accounts. Continuing barriers to entry and expansion restricting the ability of smaller and newer providers to develop their businesses were also a continuing concern, as well as limited movement over time in the market shares held by the four largest banks. These control 77% of the personal current account market and 85% of the business current account market, according to the CMA.

As a result of the consultation exercise, the CMA said that it had made some changes to the scope of the proposed terms of reference for the market investigation, particularly in relation to SME banking. This would enable the regulator to "focus the market investigation more squarely on core banking products, such as business current accounts and lending to SMEs", it said.

Last autumn a number of the UK's biggest current account providers signed up to a new Current Account Switch Service (CASS), which aims to make it easier and faster for consumers to switch between providers. The service enables switching within seven days and offers a guarantee to users that they will not face any charges or interest on their old or new accounts due to failings in the switching process if they inform the new account provider of these failings.

The CMA said that CASS seemed to be "working technically". Although the number of customers switching was still very low, there had been a 22% increase over the first year of its operation, the CMA said. However, it said that it "continue[d] to consider that this does not substantially change market dynamics". Similar barriers to competition existed in the SME sector, where many small businesses tended to choose the same provider for their business current account as for their personal current account, the CMA said.

The market reference group will be appointed shortly, and would publish a timetable for the various stages of its investigation, the CMA said in its announcement.