Comment: Banks fail to prove they learned lessons

Martin Flanagan
Martin Flanagan
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REGULATORS of one stripe or another may have thought they had largely put to bed the old financial services ­industry issue of inappropriate ­“bundling” of services that disadvantages customers. Not so, apparently, according to the Competition & Markets Authority.

The CMA – which took over the Office of Fair Trading’s competition remit last year – has reprimanded two major banks, HSBC and Northern Ireland’s First Trust Bank, for telling small and medium-sized enterprises (SMEs) they must open a business current account with them as a condition of obtaining a loan.

Naughty or incompetent perhaps, but, either way, it doesn’t cast the two banks involved in a good light. Worse, the practices also flew in the face of legally binding undertakings prohibiting this “bundling” given by eight major banks back in 2002 to the CMA’s predecessor body, the Competition Commission.

Concerns that some banks might be breaking the undertakings came to light during the recent market investigation into SME banking by the OFT, which led to the eight formally checking their practices. This in turn led to HSBC and First Trust’s sharp slap.

It could be that staff were not around 12 years ago and were simply not familiar with the ban on linking business current accounts to eligibility for SME loans.

But it does prompt the question of where was the training and supervision of staff dealing with SMEs? It is notable how many frontline financial services wrongdoing is not caught at a relatively early stage higher up in the organisation involved.

The bundling was also occurring while other SME-lending mis-steps were happening in the industry, most obviously the selling by some banks of inappropriate interest rate-hedging products to small businesses.

The CMA, under Scots-born chief executive Alex Chisholm, has told HSBC and First Trust the bundling must cease immediately.

Yesterday’s announcement was something of an hors d’oeuvre before the regulator is expected to confirm soon after next week’s third-quarter bank results season that it is to formally investigate the banking personal current accounts and wider SME lending markets. The CMA said provisionally in July it was minded to do so.

Sometimes the banking industry bleats that it has been investigated to hell and back. But as long as there is a steady flow of inappropriate, sometimes outrageous, behaviour being uncovered, banks will not find consumers queuing up to support their stance that all the lessons have been learned and the industry has moved on.

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