PLANS for a full-blown inquiry into the banking sector could be unveiled as early as this week as the competition regulator seeks to shake up the market for current accounts and small business lending.
The Competition & Markets Authority (CMA) is expected to publish the findings of its study into a market dominated by Barclays, HSBC, Lloyds and Royal Bank of Scotland, and sources expect the regulator to say it will launch a formal investigation in the autumn, which could lead to a radical overhaul of the sector.
Earlier this year, the Office of Fair Trading (OFT), which was replaced by the CMA in April, said that competition in the banking industry “may not be working effectively” and it was concerned that SMEs may not be getting the best deals from their providers.
The OFT’s update on the study into the market, published in March, said: “Barriers to entry and expansion have apparently contributed to smaller providers finding it difficult to enter and expand their business across the core business banking products.”
Richard Lloyd, executive director of consumer organisation Which?, has called for the CMA to launch a full competition inquiry to tackle what he called the “unhealthy dominance” of the biggest banks.
He said: “We estimate only 4.2 per cent of people will switch accounts this year. Unless we see an injection of much-needed competition into the market, the major high street banks will continue to have a stranglehold.”
The CMA has said that its review will consider the effects of moves such as an initiative to help customers switch current accounts within seven days, and branch disposal programmes by Lloyds and RBS.
Bank of Scotland-owner Lloyds and RBS control about 70 per cent of the SME lending market in Scotland, and a recent report from Holyrood’s economy committee said their dominance should be broken by establishing new sources of credit for SMEs.
Lloyds, which is 24.9 per cent owned by the taxpayer, has partially floated off its TSB branch network, while fellow state-backed lender RBS is planning a similar move for its Williams & Glyn operation by the end of 2016, with a full disposal due the following year.
Labour leader Ed Miliband has said that, if his party wins the general election in May, big high street lenders would be forced to give up branches and open up the market to new competitors, but British Bankers’ Association (BBA) chief executive Anthony Browne argued that proposals to limit the number of customers a bank can have would lead to worse customer service.
In his speech to the BBA annual dinner at the Mansion House in London, Browne said: “A measure aimed at promoting competition will instead stifle it.”
The BBA believes that easier access to payment systems, more flexible capital rules and low-cost funding for challenger banks would be more effective in boosting competition than caps on market share or further branch sell-offs.
Last week, the Bank of England’s Financial Conduct Authority and Prudential Regulation Authority said a reduction in the capital needed by new entrants had seen a surge in potential applications from challenger banks over the past year. One of the most recent fledgling lenders to secure a licence is Hampden & Co – the private bank previously known as Scoban being launched in Edinburgh by Ray Entwistle.
The CMA declined to comment, but the regulator is understood to be preparing to make an announcement towards the middle of the week.