A full-blown inquiry into the dominance of Britain’s biggest banks in personal current accounts and small business lending has been launched by the sector’s UK regulatory watchdog as it seeks to boost competition on the high street.
Few customers are switching accounts while complex overdraft charges are making it tough for individuals to find the best deal, the Competition and Markets Authority, the non-ministerial government body which is responsible for strengthening business competition and preventing and reducing anti-competitive activities, said on Thursday.
Alex Chisholm, CMA chief executive, said: “Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy.”
An independent panel called the Market Reference Group will conduct the inquiry to decide what action must be taken to fuel competition.
The investigation comes after a consultation launched in July on whether to investigate the lack of competition in retail banking.
The inquiry, which would last at least 18 months, could result in large banks having to sell off parts of their business to carve out new challengers.
Ed Miliband, Labour party leader, recently said he would break the stronghold of the big banks by making them sell branches if he is elected prime minister.
The big four – Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC – still provide more than 77 per cent of current accounts, according to the CMA.
Recent figures from the Payments Council show there were 1.2m current account switches in the first year since 7-day bank switching was launched, but this is small relative to the 46m accounts in the UK.
Almost half of UK bank customers who wanted to switch their current accounts were held back by the view other accounts would be no better, according to a survey by Accenture of 3,600 account holders.
Paul Pester, chief executive of TSB Bank, said consumers had been “crying out” for an investigation.
“The Big Four banks have had a stranglehold on the market for far too long,” he added.
Anthony Browne, chief executive of the British Bankers’ Association, said: “All the banks will co-operate fully with any investigation. There are already substantial changes currently under way across the banking industry to strengthen competition, which improves choice and service for customers.”
John Longworth, director-general of the British Chambers of Commerce, said the move to launch a full investigation was “undoubtedly the right decision” as businesses wanted greater choice.
“For many years Britain’s dysfunctional banking sector has struggled to meet the needs of SMEs, impeding the growth prospects of some of our most promising young companies,” he said.
“This investigation represents a unique opportunity which must be seized, in order to deliver real change in the banking sector. We call on the government to commit to implementing the findings of the CMA’s investigation to restore trust, transparency and relationships between lenders and businesses.”
Andrea Leadsom, economic secretary to the Treasury, said opening up competition in the banking sector was “a key part of the government’s long-term economic plan”, so that it better serves the needs of Britain’s businesses and customers. FT
