Competition watchdog launches investigation into UK banks

6th November 2014

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The Competition and Markets Authority (CMA) has launched an investigation into the personal current account and small business banking sectors.

The CMA said the probe has been set up as a result of its concerns over the “limited transparency, and difficulties for customers in making comparisons between banks, particularly for complex overdraft charges on personal current accounts”.

It added that it has also worried about the continuing barriers to entry and expansion into the sector, limiting the ability of smaller and newer providers to develop their businesses and that there is very little movement over time in the market shares of the four largest banks, which provide over three-quarters of personal and business current accounts.

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

“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.”

The investigation will be conducted by a Market Reference Group drawn from the CMA’s panel of independent members. It 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.

“The group will be appointed shortly and will publish a timetable for the various stages of the investigation and develop and consult on an issues statement, which will set out the investigation’s proposed focus,” added Chisholm.

The CMA has also decided to conduct a review of the competition undertakings put in place following the Competition Commission’s (CC) report in 2002 into small and medium-sized enterprise (SME) banking, in order to examine whether any change of circumstances since then warrant their being varied or terminated.

Commenting on the investigation Andrew Hagger of Moneycomms said “The main bugbear for customers is that the banks use a wide range of different charging tariffs. Some now charge daily fees instead of interest, claiming that they are easier to understand and more transparent – the trouble is they tend to be very expensive for people borrowing smaller sums – say £500 or less.

“Others banks charge an interest rate but also a monthly fee – so shopping around to find the cheapest deal is a nightmare. It will be interesting to see how the CMA plans to untangle the current mess in its efforts to address what it considers to be one of the key issues.”

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