• The Thin End of the Wedge: The CMA and the FCA Publish Provisional Findings on Retail Banking
  • July 30, 2014
  • Law Firm: Dentons Canada LLP - Toronto Office
  • Competition in retail banking, including banking services to small and medium-sized enterprises (SMEs) has been the subject of detailed consideration by the UK competition authorities over the last 15 years. Multiple competition concerns have been identified over the years and, despite attempts to remedy these, the competition authorities seem convinced that there are still issues that need to be resolved. In the past, several recommendations were made that a market investigation reference should be considered before 2015.

    The latest action to be taken by the competition authorities is the public consultation on the provisional decision by the Competition and Markets Authority (CMA) on personal current accounts (PCAs) and banking services to SMEs published on 18 July 2014.

    The provisional decision is the result of two strands of work that have been undertaken by the CMA: first an update on the OFT's market study into PCAs and second the CMA's joint study with the Financial Conduct Authority (FCA) into banking services to SMEs.

    Having identified that there is not currently effective competition in these markets, the CMA is now consulting on its proposal to launch an in-depth market investigation. Such an investigation would allow the CMA to impose wide-ranging structural remedies.

    The CMA and the FCA have found that customers in the SME banking and PCA sectors face similar issues, namely:

    • Inability of newer and smaller banks to break into the market and expand.
    • The persistence of high levels of concentration and relatively stable market shares of the largest banks.
    • Lack of competition between banks resulting in a "sticky market" indicated by low levels of switching by customers.
    • A lack of transparency making it difficult for customers to compare products, particularly for PCA overdraft charges.
    • Evidence of customer dissatisfaction including in respect of service and prices.

    Given recent developments in retail banking, specifically changes in the switching process, the CMA is also considering reviewing the undertakings given by the major banks in 2002 following a Competition Commission investigation. The undertakings included measures to facilitate closing and switching accounts, restrictions on bundling of products and the provision of more pricing information to customers to improve transparency.

    Banking sector in the FCA's spotlight

    Whilst the CMA's wider work plan in banking includes the PCA update and SME banking review, the FCA's competition programme would appear to be more far-reaching, as shown by the variety of market studies listed in the table below. The FCA has publicly stated that it expects market studies to be its main tool for examining competition issues in the markets it regulates.


    Study launched

    Details and next steps

    General insurance add-ons

    December 2012

    Provisional findings and proposed remedies report published 11 March 2014. Consultation on remedies expected late 2014.

    SME banking
    (Collaboration between the FCA and the CMA)

    June 2013

    Provisional decision published 18 July 2014. Currently consulting on launching a market investigation. Comments to be submitted by 17 September 2014.

    Cash savings

    October 2013

    Interim findings published 8 July 2014. Final report expected by the end of 2014.

    Retirement income

    February 2014

    Study launched 14 February 2014. Terms of reference updated 9 June 2014. Interim findings expected later in 2014.

    Credit cards

    Late 2014

    Announced 3 April 2014. Study set to launch by the end of 2014.

    Wholesale investments

    Early 2015

    Review launched 9 July 2014. Consulting on whether to launch a market study. Comments to be submitted by 9 October 2014.


    Market studies are currently the only tool in the FCA's competition toolkit. However, from 1 April 2015 the FCA will also be able to examine individual companies' agreements and practices, using its powers under the Competition Act 1998 and the Enterprise Act 2002. Such powers will include the power to investigate agreements which restrict competition, abuse of dominance and the ability to make a market investigation reference to the CMA. Market studies will continue to be important as they often provide the evidence to justify a market investigation.

    It is worth noting that the FCA, through its subsidiary, the Payment Systems Regulator (PSR), also has competition powers in relation to payment systems. In March 2014, the PSR published a "call for inputs" on payment systems regulation, with a view to publishing statements before it becomes fully operational in April 2015.

    The way forward?

    The CMA has stated that it is not certain the FCA's work will offer comprehensive and timely solutions to all the concerns it has identified in the retail banking sector. The CMA believes that a "joined-up" approach is needed and that the way to address these concerns is through a market investigation. This indicates that the issues arise as a result of the market as a whole, rather than the behaviour of any individual player.

    The CMA has rejected undertakings proposed by the largest banks to remedy the identified competition concerns. The undertakings included setting up a comparison website and establishing new account-opening standards for SMEs. The CMA noted that the banks have offered no undertakings to solve the competition concerns in the PCA sector.

    On a final note, it will be interesting to see how this investigation develops, bearing in mind the recently announced energy market investigation, which bears a number of similarities, both in terms of market structure and competition concerns. Oligopolies operate in both the energy and retail banking markets, and in addition both markets show signs of ineffective competition including high levels of apparent customer dissatisfaction yet low levels of customer switching, static market shares of incumbent firms and barriers to entry.