The U.K.’s biggest banks face a probe into checking accounts and services for small- and medium-sized businesses as the U.K. antitrust regulator said the industry hasn’t done enough to open up the market.
The Competition and Markets Authority said there has been very little change in the market share of the four largest banks, which provide more than three-quarters of personal and business current accounts, according to an e-mailed statement.
“Effective competition in retail banking is critically important for individual bank customers, small- and medium-sized businesses, and the wider economy,” Alex Chisholm, the CMA’s chief executive officer, said today.
British lawmakers want to loosen the grip of Britain’s four biggest lenders — Barclays Plc (BARC),HSBC Holdings Plc (HSBA), Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS) — which control more than 90 percent of the market for small-business lending and have been hit by scandals including improper sales of interest-rate swaps and payment protection insurance.
Regulators will also review undertakings made in 2002 by nine clearing banks that targeted concerns over small business, or small business enterprise, banking.
DYSFUNCTIONAL BANKING
“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,” John Longworth, director general of the British Chambers of Commerce, said in a statement. “This investigation represents a unique opportunity which must be seized, in order to deliver real change in the banking sector.”
The British Bankers’ Association said the industry would cooperate with the investigation.
“There are already substantial changes currently underway across the banking industry to strengthen competition, which improves choice and service for customers,” BBA CEO Anthony Browne said in a statement. “Banks are pro-competition –- they compete for business every day.”
The banks had earlier submitted proposals to head off a full market probe, including setting up a comparison website and establishing new standards to make it easier for small businesses to switch lenders. The CMA said most responses to a consultation it held called for a continued investigation.
Officials at RBS, Lloyds and HSBC, Europe’s largest bank, also said they would work with the CMA to address the regulator’s concerns.
The CMA said it can impose remedies or ask other regulators to consider taking action if it sees behavior that harms competition. It can also require companies to sell parts of their business.
NEW BANKS
Several new banks have started up in an effort to challenge the country’s biggest lenders. New entrants in recent years include Metro Bank Plc, Tesco Bank and TSB Banking Group Plc. (TSB). Their combined market share is about 5 percent, of which TSB represents 4.2 percent, the CMA said.
“The big four banks have had a stranglehold on the market for far too long,” Paul Pester, CEO of TSB, said in an e-mailed statement. “The CMA investigation should focus on achieving greater transparency in banking along with more choice and competition.”
SIGNIFICANT BARRIERS
Customers rarely switch lenders, the CMA said, citing limited transparency and difficulties in comparing banks, particularly for complex overdraft charges on personal checking accounts. The authority usually has an 18-month deadline to conclude market investigations, which can be extended by an extra six months
The CMA said in July it was considering whether to examine the banking market for small- and medium-size companies and the supply of individual checking accounts. It said then that barriers to entry and expansion for newer and smaller banks “remain significant” and markets were concentrated, especially in Scotland and Northern Ireland.
The predecessors of the CMA, which is less than one year old, have struggled with attempts to regulate the finance industry. In January 2013, the Office of Fair Trading decided not to probe personal checking accounts, saying there had been progress that made it easier for consumers to compare and switch providers.
In 2009, the U.K. Supreme Court blocked the OFT’s efforts to challenge fees that lenders charged customers who exceeded overdraft limits.
“Today’s decision means it’s now crunch time for the biggest banks that dominate a market blighted by a lack of trust and poor customer service,” Richard Lloyd, executive director of the consumer group Which?, said in a statement.
To contact the reporters on this story: Andrea Gerlin in London at agerlin@bloomberg.net; Aoife White in Brussels at awhite62@bloomberg.net
To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net Jon Menon