The
Competition and Markets Authority (CMA) has stated its preference for
behavioural remedies in its interim findings in the ongoing retail banking
market investigation. This represents a
sharp contrast to the tougher structural remedies that it has been urged to
consider.
The
CMA has provisionally found that there are features of the markets for personal
current accounts, business current accounts and SME lending in Great Britain
and Northern Ireland that give rise to adverse effects on competition. The features that it has identified relate to
themes that have been the subject of scrutiny in the numerous market and sector
inquiries that the sector has faced over the years, including low levels of customer
engagement, barriers to accessing and assessing information, barriers to switching,
incumbency advantages and linkages between different lending products.
The
CMA’s proposed remedies are designed to influence customer behaviour and
particularly switching, as well as make it easier for SMEs to shop around. The proposed remedies include a requirement
that banks should be required to prompt customers to review banking services at
various ‘trigger points’ such as the closure of local branches and changes to
terms and conditions. In relation to
SMEs, the CMA proposes that customers should be reminded to switch at the end
of free banking periods. The CMA has
also decided not to recommend ending free-if-in-credit banking where there are
no account operation charges but the consumer does not receive any interest. The CMA did not find that this practice
distorted competition even though challengers said that this presents an obstacle
for switching.
Over
the course of the CMA’s inquiry which was launched in November 2014, it has
found little shift in the market shares of the four largest banks which account
for roughly 75% of personal and SME banking services. The
statistics cited by the CMA make rather dismal reading. In SME banking it found that half open their
accounts with their personal account provider and 90% remain with the same
provider after the initial free banking period expires. Nearly 60% of consumers have remained with
their personal account provider for over a decade. Last year, only 16% explored alternatives and
only 3% switched.
The
remedies proposed by the CMA generally reflect the trend of informational
remedies that the CMA and its predecessor the Competition Commission have
adopted in other consumer-focused and financial services markers (e.g. store
cards, PPI, Northern Ireland Personal Current Accounts, Home Credit, the list
goes on…). The remedies, inspired by
behavioural economics, are essentially aimed at empowering the consumer with
the tools to take action.
The
move away from structural remedies is a stark contrast from the pleas to adopt
more draconian solutions in the form of divestiture remedies and which reached
a high-water mark in the months preceding the launch of the inquiry. However, far bigger questions perhaps remain
as to where challenger banks will come from.
This does not necessarily imply structural remedies but it does put a
focus on the existing regulatory barriers such as capital requirements that can
hold back such new entry. In fact, some challengers would argue that
stimulating competition in the sector is not so much about selling off bank
assets but lowering regulatory barriers to entry.
The
CMA invites comments on the provisional findings and proposed remedies by 20
November. Although there is likely to be
some tinkering with the remedies, the broad direction of travel seems clear and
for now, at least, radical remedies such bank break-ups are off the table.
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