The director general of the British Chambers of Commerce has strongly backed a competition watchdog probe into UK retail banking.
Britain’s biggest banks face months of uncertainty after the Competition and Markets Authority said it was pressing ahead with an in-depth inquiry into the personal current account and SME retail banking sectors.
Currently only about 4% of SMEs switch their banking arrangement each year, and current accounts transfers are also low.
Barclays, HSBC, Lloyds who have each registered their concerns at the prospect of an investigation and RBS collectively have more than three-quarters of the personal current account market in the UK, 85% of business accounts and supply more than 90% of business loans.
The CMA probe, which follows a provisional decision to investigate taken in July, will decide if competition issues exist and recommend remedies if they do.
“Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy,” CMA chief executive Alex Chisholm said.
“After carefully considering the consultation responses, most of which supported a market investigation, we remain of the view that there should be a full market investigation into the sector, conducted by a Market Reference Group drawn from the CMA’s expert panel of independent CMA members.
“The Market Reference Group will investigate in detail and decide what action, if any, may be needed to improve competition for the benefit of personal and small business customers.”
The CMA said the group will be appointed in coming weeks and will publish a timetable for the stages of the investigation.
John Longworth, director general of the British Chambers of Commerce, said it was “undoubtedly the right decision” for the CMA probe to go ahead.
“For many years Britain’s dysfunctional banking sector has struggled to meet the needs of SMEs, impeding the growth prospects of some of our most promising young companies.
“The independent Business Banking Insight confirmed that a large number of firms across the country are unhappy with the level of service they receive from their bank,” added Mr Longworth.
“This investigation represents a unique opportunity which must be seized in order to deliver real change in the banking sector.
“We call on the Government to commit to implementing the findings of the CMA’s investigation to restore trust, transparency and relationships between lenders and businesses.”
The UK’s challenger banks reacted with glee at the prospect of a probe yesterday, with the Post Office’s head of current accounts John Willcock describing the move as “extremely welcome” and Metro Bank CEO Craig Donaldson saying a level playing field in banking was required.
TSB chief executive Paul Pester added: “Consumers have been crying out for a root-and-branch investigation like this for years, and we have previously said the CMA would be uniquely placed to carry out this complete review of the market.”