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LONDON (Alliance News) - The Competition and Markets Authority Friday recommended an in-depth market investigation into the UK retail banking sector after finding that essential parts of it do not meet the needs of its customers.
The watchdog is now consulting on its provisional decision that there should be an investigation into the markets for personal current accounts and banking for small-and-medium enterprises.
The probe could result in structural remedies, such as breaking up banks through divestment, or behavioural changes that may include improved transparency and the provision of better information to customers. The CMA said it will make a final decision on a market investigation in the autumn.
The largest four personal current account providers account for over 77% of the market in the UK, while the largest four providers for SMEs account for more than 85% of business current accounts and 90% of business loans.
"Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy," CMA Chief Executive Alex Chisolm said in a statement. "However, 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," Chisolm added.
The UK's largest high-street banks - Barclays PLC, HSBC Holdings PLC, Lloyds Banking Group PLC, Royal Bank of Scotland Group PLC, and Santander UK PLC - will be paying close attention to the development. Banking competition has become an important theme for regulators and lawmakers amid concerns that barriers to entry remain to high and that customers see little difference between the largest banks' service.
Barclays, HSBC, Lloyds Banking Group and RBS had proposed setting up a comparison website to improve transparency, as well as new account opening standards, among other measures to remedy the problems in the SME banking sector, as opposed to the market investigation, though the CMA said it provisionally considers a full investigation to be "more appropriate" than their proposals.
Reacting to the CMA's provisional decision, the chief executive of the British Bankers' Association, Anthony Browne, said that all banks will cooperate fully with the review.
"Banks are pro-competition ? they compete for customers every day. Last month we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians," Browne said in a statement.
The BBA proposed a number of measures to support competition in the industry, suggesting that public sector bodies should be encouraged to invest funds in the UK's smaller, emerging banks to help them compete with their large, dominant high street rivals. It also called for less-onerous capital requirements on banks trying to challenge the dominant lenders, as well as for more proportionate regulation.
A number of new entrants to the market are tying to gain a foothold in the market, with TSB Banking Group PLC, the lender being spun-off by Lloyds, and Metro Bank just two of several would-be challengers to the main players on the high-street. From outside the UK, Sweden's Handelsbanken also has moved into the UK retail banking market.
The CMA is the UK's primary competition and consumer authority. On April 1, it took over the functions of the Competition Commission and the competition functions of the Office of Fair Trading.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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