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* Watchdog wants to stimulate competition for "big four"
* Critics say proposals don't go far enough
* Final report to be published in August (Adds cost and more reaction)
By Andrew MacAskill and Huw Jones
LONDON, May 17 (Reuters) - Long-awaited measures to breakthe market dominance of Britain's biggest banks, including a capon fees for unauthorised overdrafts, were criticised on Tuesdayby consumer groups as insufficient to boost competition.
The Competition and Markets Authority's recommendations,following a near three-year, 5 million pound ($7.2 million)probe into high street banking, shied away from radical measureslike breaking up lenders or ending free in-credit banking.
Regulators and lawmakers are keen to increase competition ina sector dominated by the four lenders -- Lloyds Banking Group, Royal Bank of Scotland, Barclays andHSBC -- which control more than three-quarters ofcurrent accounts and provide nine out of 10 business loans.
The CMA's proposals disappointed consumer groups, analystsand the new entrants in banking known as challenger banks whichare bidding to poach market share from the biggest lenders.These include Secure Trust, Virgin Money,Aldermore, Shawbrook and Metro Bank.
"This inquiry achieved little more than to propose basicinformation measures that the big banks should have introducedyears ago," Alex Neill, Director of Policy and Campaigns atBritain's largest consumer body Which?, said.
The British Bankers' Association (BBA), which represents theindustry, was among the few groups to welcome the plans.
The CMA's report focused on improving transparency to givecustomers and small businesses more information to shop around,such as by forcing banks to join a price comparison website.
It also said bank charges were too complicated and manycustomers and small businesses, most of whom stay with the samelender for more than a decade, were unaware if they were gettinggood value for money.
To address this it proposed making it easier to moveaccounts by forcing banks to introduce technology so theircustomers' accounts history can be shared easily with rivals.
Stakeholders have until June 7 to submit feedback on themeasures before a final report is published in August, with theremedies in force by early 2017.
Several smaller lenders said they didn't go far enough.
"I do not think the CMA's decisions will shake thefoundations of UK banking," Phillip Monks, head of Aldermore,said.
NUDGING CUSTOMERS
The CMA decided against more radical measures such asallowing customers to keep their bank account number when theyswitch lenders, saying this was too expensive.
Alasdair Smith, a member of the CMA panel, said radicalchanges like easing bank capital requirements to encourage newentrants were matters for regulators like the Bank of England.
Instead the CMA is focused on "nudging" customers andbusinesses into being more pro-active in their choices.
New ways of banking emerging from the "fintech" sector willalso help increase competition, the watchdog added.
But Rishi Khosla, the founder of challenger lender OakNorthBank, said small firms suffered more from a lack of specialistavailable loans rather than poor price transparency.($1 = 0.6896 pounds) (Editing by Keith Weir and Alexander Smith)
