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Banks to face competition inquiry


The UK banking industry is set to face an inquiry after a study by the Competition and Markets Authority (CMA) found that the current account and SME lending markets “lack effective competition”.

At the moment, the largest four banks own more than 77% of the current account market and more than 80% of small business lending.

This led the watchdog to claim that too many barriers to entry into the market for new and smaller banks were the reason to a lack of competition.

The CMA went on to criticise the way the industry functions by stating that this was “not what would normally be expected in well-functioning competitive markets”.

A statement from Alex Chisholm, chief executive of the CMA said:

"Our studies have found that, despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks.

"Our provisional view is that a full market investigation by an independent expert CMA group is necessary to look at this market in detail and identify appropriate measures if competition concerns are found.

"However we very much welcome views, which we will carefully consider, before taking a final decision."

Revolution in customer service

Pending the results of the investigation, the CMA will be able to enforce powers such as breaking up powerful banks or implementing rules designed to change behaviours in the industry, such as forcing banks to provide specific information to customers.

However, Richard Lloyd, executive director of consumer group Which? said that more needs to be done in the industry. Whilst he conceded that there have been some “encouraging signs of change” from some banks, he claimed that there needs to be “a revolution in customer service” and that products should be easier to compare.

He then went onto say: “The CMA must now get to the bottom of why this market is not working for consumers, but the banks should not waste any time in making changes to put the interests of their customers first."

David Mann, head of money at uSwitch also supported the idea of increasing competition in the market, but he criticised the length of time it will take for any change to be implemented.

He said: “Unfortunately the CMA won’t be announcing its final decision until the autumn, and it could be up to two years before we see an outcome to any investigation. In the meantime it is down to consumers to take advantage of the new regulation that makes it quicker and simpler to switch and vote with their feet if they are not happy.”

The new regulation that Mr Mann was referring too was a rule that was introduced in September, guaranteeing that all current accounts switches should be finalised within seven working days.

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