The UK’s big banks could be broken up after the country’s new competition watchdog said it planned to launch an 18-month investigation into services for small business clients and personal current accounts.
The Competition and Markets Authority (CMA) said yesterday there was a lack of competition among banks.
Also, proposals that lenders put forward to increase transparency and make it easier to switch did not go far enough to meet the needs of personal consumers or small and medium-sized enterprises (SMEs).
The CMA — which was formed as the UK’s new competition watchdog in April — can order structural remedies, such as breaking up banks which are considered to be too dominant, and behavioral remedies, such as improving information given to customers.
State-backed Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC are the biggest banks for both current accounts and SME banking, and are most at risk of being told to cut their market share, potentially by selling off branches.
“Our studies have found that despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks,” CMA chief executive Alex Chisholm said.
A full investigation would take about 18 months, so it would be early to mid-2016 before any remedies were proposed.
The UK’s biggest four banks, which also include Barclays and HSBC, hold 77 percent of the 65 million personal current accounts in the UK, and have 85 percent of the 3.5 million business current accounts.
They also provide nine out of every 10 business loans, the CMA said.
Studies of current accounts and SME markets released by the CMA showed barriers to entry for newer and smaller banks remain significant, there is little movement in the market share of big banks, clients see little difference between the services on offer from the big banks, and there is little transparency to compare prices such as overdraft fees.
As a result, levels of switching are low. Only 3 percent of current account customers switch each year and only 4 percent of SMEs change banks, the CMA said.
The CMA had been expected to launch a full probe into SME banking, but it was less certain it would propose a wide-ranging investigation of current accounts.
The Federation of Small Businesses said the investigation of SME banking should force the banks to “up their game” and wants barriers to entry for new banks to be reduced, including for alternative finance providers.
“The goal should be to deliver a market structure that encourages far more dynamism, choice and innovation,” the federation’s national chairman John Allan said.
The CMA said it would make a final decision in the autumn and has given banks and other market participants until Sept. 17 to submit their views.
However, it would be highly surprising if the investigation did not go ahead.
The biggest four banks had proposed improving competition in SME banking by setting up a comparison Web site to increase transparency and make it easier for companies to switch banks, but the CMA said it would prefer to conduct a full investigation.
It would mark the second full-blown industry investigation being carried out by the CMA. It said last month it would investigate competition among the UK’s energy suppliers.
The CMA took over separate investigations into personal current accounts and SME banking that were initiated by the Office of Fair Trading. The findings of its studies into current accounts and SMEs was made jointly with the UK’s Financial Conduct Authority.
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