Press release

Personal current account and small business banking face full competition investigation

The CMA has today announced its decision to launch an in-depth market investigation into the personal current account and SME retail banking sectors, confirming its provisional decision of 18 July 2014.

The investigation will be conducted by a Market Reference Group drawn from the Competition and Markets Authority’s (CMA) panel of independent members.

Following the announcement in July, the CMA embarked on a consultation regarding its provisional decision to launch a market investigation. Most respondents agreed that there should be a market investigation. Having carefully considered the consultation responses, the CMA continues to have concerns about the effectiveness of competition in these sectors and has decided to make a market investigation reference. These concerns include:

  • low levels of customers shopping around and switching
  • limited transparency, and difficulties for customers in making comparisons between banks, particularly for complex overdraft charges on personal current accounts
  • continuing barriers to entry and expansion into the sector, limiting the ability of smaller and newer providers to develop their businesses
  • very little movement over time in the market shares of the 4 largest banks, which provide over three-quarters of personal and business current accounts

Alex Chisholm, CMA Chief Executive, said:

Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy.

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 group will be appointed shortly and will publish a timetable for the various stages of the investigation and develop and consult on an issues statement, which will set out the investigation’s proposed focus.

The CMA has also decided to conduct a review of the competition undertakings put in place following the Competition Commission’s (CC) report in 2002 into small and medium-sized enterprise (SME) banking, in order to examine whether any change of circumstances since then warrant their being varied or terminated. This review will be conducted alongside the market investigation by a group composed of the same panel members as those conducting the market investigation.

All information relating to the market investigation will be available on the retail banking market investigation case page and all information regarding the review of the competition undertakings will be available on the undertakings review case page.

Notes to editors

  1. Under section 131 of the Enterprise Act 2002, the CMA may make a market investigation reference to its Chair for the constitution of a Market Reference Group where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom (UK) for goods or services, prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the UK or a part of the UK.
  2. In its market investigation, the group is required to decide whether there is a prevention, restriction or distortion of competition. If it does identify such an adverse effect on competition, the group will then consider what, if any, appropriate action should be taken to address this.
  3. Today’s decision confirms the provisional decision of 18 July 2014 to make a market investigation reference into personal current accounts and into aspects of SME banking, save that, in the light of responses in the consultation process, the CMA has made some changes to the scope of the proposed terms of reference for the market investigation, including in particular in relation to SME banking, to focus the market investigation more squarely on core banking products, such as business current accounts and lending to SMEs.
  4. The competition undertakings following the CC’s 2002 report into SME banking were intended to facilitate competition by reducing switching costs, improving price transparency and placing certain limits on the ‘bundling’ of business current accounts with other banking services provided to SME customers (including both business loans and business deposit accounts). Such undertakings may be reviewed by the CMA to consider whether, by reason of any change of circumstances, they need to be varied or superseded, or the parties released from them. The CMA has also recently taken action to enforce undertakings related to the bundling of products in relation to certain banks. See the press release for further information.
  5. For further information about the CMA’s programme of work in aspects of retail banking, including the full text of today’s decision to make a market investigation reference (and the amended terms of reference) and the findings of the market study reports, please visit the retail banking market investigation case page. Further information regarding the initial assessment of the competition undertakings can be found on the SME banking undertakings review case page.
  6. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the CC and the competition and certain consumer functions of the Office of Fair Trading.
  7. Enquiries should be directed to Kasia Reardon on 020 3738 6901 or Rory Taylor on 020 3738 6798 or Simon Belgard on 020 3738 6460.
  8. For more information see the CMA’s homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on the retail banking market investigation.