CMA announces its proposed reforms to the retail banking market

Following an investigation lasting nearly three years, on 17 May 2016, the Competition and Markets Authority (CMA) announced its proposed remedies to reform the retail banking market. The wide-ranging remedies are designed to rectify features which the CMA considers detrimentally affects competition in the markets for personal current account (PCA) and retail banking services for SMEs.

The investigation so far

On 22 October 2015, the CMA published its provisional findings, identifying a number of competition issues in the markets. In particular, the CMA provisionally concluded that there were low levels of customer engagement, barriers to accessing information, barriers to switching between banks, and links between PCAs and SME lending products. The CMA consulted on a package of remedies to address its concerns.

Following stakeholder engagement, the CMA subsequently published additional remedy considerations and a supplemental notice on possible remedies in December 2015 and March 2016. On 15 April 2016, the CMA also published an addendum to its initial provisional findings, to reflect further updated analysis that it had undertaken.

The recent announcement of the CMA’s provisional decision on remedies outlines the package of remedies that the CMA is minded to impose following its investigation and analysis.

Remedies proposed

As part of its package of wide-ranging remedies to tackle issues hindering competition in the markets, the CMA has proposed:

1. measures to improve customer engagement, for example, through customer prompts, to improve transparency and to make better information available to customers. This will enable customers to find out easily which provider and account is best for them, facilitating shopping around between products and switching of providers;

2. measures to develop new online comparison tools, to give tailored price-comparison and service quality advice;

3. measures to improve the current account switching service, to make switching between banks simpler and give customers greater awareness of the service;

4. measures aimed at overdrafts, including requiring banks to set a monthly maximum charge for unarranged overdrafts on PCAs; and

5. measures to deliver better SME banking services, to facilitate shopping around and switching, including by making price and availability of lending products more transparent.

Interestingly, the CMA notes that it did consider a more drastic remedy of whether the largest banks should be broken up, but concluded that such a remedy would not in fact address the fundamental competition issues in the markets. The CMA considered that a larger number of smaller banks would still not enable customers to choose easily between them, due to lack of transparency on fees and charges, and therefore not significantly improve the market.

The CMA considers that its package of proposed remedies could bring £1 billion in benefits to banking customers over 5 years.

What happens now?

The CMA invites comments on its provisional decision on remedies by 7 June.

Following this, its final report in the retail banking market investigation will be published by the statutory deadline of 12 August 2016.