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UK retail finance market likely to face CMA investigation

    • Financial services and markets regulation
    • Financial institutions


    The Competition and Markets Authority (the CMA), the successor body to the Office of Fair Trading and the Competition Commission, announced on 18 July 2014 its provisional decision that there should be a ‘joined up in-depth’ market investigation into the markets for banking services for SMEs and the supply of personal current accounts.

    The CMA will now consult until 17 September 2014 on its provisional decision. The CMA will make a final decision regarding the market investigation reference in Autumn 2014.

    The CMA inherited the market study into SME banking from the OFT and has been working closely with the Financial Conduct Authority (FCA) in relation to the study. Its principal concerns in relation to SME banking are:

    • the continuing levels of concentration in the sector since the provision of current accounts and loans to business is generally undertaken by a few large banks
    • the difficulties for SMEs in differentiating between lenders due to lack of transparency in price and service offerings
    • the obstacles to smaller providers entering the market to provide business banking services
    • the low levels of switching and shopping around by SMEs for alternative sources of finance

    In relation to the supply of personal current accounts, the CMA has been updating the OFT’s 2013 review of the personal current account market. In doing so, the CMA has considered certain longstanding competition concerns identified by the OFT, including high levels of concentration, low levels of new entry and low switching rates, and any developments in the sector in light of the following changes:

    • the introduction of the new seven-day Current Account Switching Service
    • the impact of the planned divestments by Lloyds Banking Group and by The Royal Bank of Scotland of parts of their retail banking businesses
    • the forthcoming establishment of the Payment Systems Regulator

    The CMA has identified that it has common concerns in relation to both markets. These concerns include:

    • high levels of concentration and significant barriers to entry and expansion for smaller and newer banks
    • little movement in the market share of the largest banks
    • customers seeing little difference between the largest banks and the services they offer
    • low levels of shopping around and switching by consumers
    • limited transparency, making comparison for customers difficult

    The CMA has provisionally indicated that it considers that a full market investigation will be more appropriate than accepting proposed undertakings put forward by Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland Group. The proposed undertakings include a comparison website and other measures to facilitate switching.

    In the event that a market investigation reference is made in the Autumn, a panel of independent members of the CMA will undertake an in-depth and time consuming review over a period of 18 months with a view to determining whether there are market features which prevent or restrict competition in the supply of these banking services. The CMA has a wide discretion in relation to the remedies it can adopt in order to address any competition issues it identifies but the appropriateness of any remedies will need to be considered in the context of any developments which occur in the market (including regulatory changes) during the investigation period.