Moves to improve competition within Britain’s banking industry have not yet had the desired effect, the head of the competition watchdog said, raising the prospect that the country’s biggest banks could be broken up.
The Competition and Markets Authority (CMA) is investigating the market for personal current accounts and small business banking services and will decide what measures must be taken by May 2016.
Its chief executive Alex Chisholm said in a submission to New City Agenda, an independent political think tank, that the CMA could order banks to sell assets or tell them to provide clearer pricing and comparisons between different products.
Unlike previous investigations into the industry, the CMA has the power to order banks to take actions rather than just make recommendations, Chisholm said, and those actions may also require changes to current laws and regulations.
Chisholm said moves to stimulate competition, including ensuring customers can switch banks in seven working days, had not had the desired effect.
“They don’t seem to us yet to have had the transformative effect hoped for, and the long-standing concerns about competition in retail banking largely remain,” he said.
Britain’s biggest four banks – Lloyds, Royal Bank of Scotland (RBS), Barclays and HSBC – control more than three quarters of current accounts and provide nine out of 10 business loans.
Paul Pester, chief executive of new bank TSB, said yesterday that medium-sized banks could merge to give them the scale to compete with bigger rivals.
“It’s a possibility,” he told Reuters at an event in parliament organised by think tank New City Agenda. “Scale is important. Giving some of these mid-tier banks enough teeth to really compete is going to be important.”
Some lawmakers blame a lack of choice for scandals that have engulfed the industry in recent years including the mis-selling of loan insurance and complex hedging products and shoddy treatment of small businesses in financial difficulty.
State-backed RBS and Lloyds could come under particular scrutiny in the investigation. Lloyds is Britain’s biggest provider of personal current accounts, while RBS provides services to more UK small businesses than any rivals.
In a further submission to the think tank, Tesco Bank’s chief executive Benny Higgins criticised the way some of Britain’s biggest banks treated customers.
“Many of the banks get away with offering their customers a very poor deal – generating billions of pounds in revenue for themselves as a result,” he said.