UK lawmakers condemn watchdog efforts to boost banking competition

By Huw Jones

LONDON, Nov 1 (Reuters) - Lawmakers tore into officials fromBritain's competition watchdog on Monday, accusing them of a"dereliction of duty" and "passing the buck" in their reportinto how to boost competition in high street banking.

Parliament's Treasury Select Committee members said theCompetition and Markets Authority report, published in August,failed to prise open a sector dominated by the "big four"lenders, Lloyds Banking Group, HSBC, Barclays, and Royal Bank ofScotland.

The arrival of many "challenger" banks on the market hasfailed to make a big dent in big four market share. Consumers inBritain don't have to pay for a bank account if they stay incredit, so don't have much incentive to switch bankingproviders, while those with unauthorised overdraft face heftyfees.

The CMA report avoided radical measures such as breaking upbanks, ending free in credit banking, or imposing regulatorycaps on unauthorised overdraft charges, and instead focused ongiving customers the information and tools to find the bestdeal.

The CMA is on its own in believing this would loosen bigfour dominance, the committee's chairman Andrew Tyrie said atthe end of a three-hour grilling of the watchdog's officials.

Lawmakers, academics and consumer groups are disappointedwith the CMA, Tyrie said.

"Most of them have concluded that you have dropped thecatch," he told Alasdair Smith, who headed the CMA's 5 millionpound, 700-page review.

Smith replied, "I am confident that this is a very strongreport and that the package of measures we are putting in placewill have a transformational effect."

OVERDRAFT MONEYSPINNER

The CMA report said banks must publicise their monthlycharge for unauthorised overdrafts, a billion pound a yearmoneyspinner that accounts for a third of retail bankingrevenues.

An "open banking" plan will also allow third party firms toaccess a customer's banking data to analyse which type ofaccount would be best value.

But Rachel Reeves, a Labour opposition lawmaker, said a"payday" loan, whose interest rate is now capped by regulatorsafter public outcry over their size, was cheaper than anunauthorised overdraft.

The CMA has asked the Financial Conduct Authority to look ata possible regulatory cap on unauthorised overdraft fees.

"You are passing the buck to the FCA. I do think that is adereliction of duty," Reeves said.

Lawmakers said the CMA was relying on a marketing campaignthat failed to tackle overdraft charges that "subsidise" freebanking for those in credit, leaving big banks "unmolested" andfacing just "one or two fiddles around the edges".

Similar, "incremental" efforts going back nearly two decadesthat relied on consumers being very pro-active also failed tomake a dent in market concentration, they said.

Some lawmakers want customers to be able to keep theiraccount number if they switch banks, but the CMA said this wouldbe too expensive for banks to implement.

Smith said account switching from one bank to another, whichlegislation has made much easier in recent years, will double tosix percent within three years.

"So if we keep calm and wait for the passage of time, thingsare going to improve?" Tyrie said. "The cavalry is coming!"

"Yes, everything takes time," Smith replied.

Since the financial crisis that prompted Britain to rescueseveral banks, the committee has been instrumental in pushingthrough financial sector reforms and it may now focus itsefforts on the FCA to boost competition in high street banking. (Editing by Alexandra Hudson)