October 22, 2015 / 6:15 AM / 3 years ago

British banks spared worst outcomes in competition probe

LONDON (Reuters) - Britain’s banks will not be broken up or forced to ditch free banking services to improve competition in the industry, alleviating the fears of the country’s dominant lenders.

The Canary Wharf financial district is seen in east London November 12, 2014. REUTERS/Suzanne Plunkett

The Competition and Markets Authority (CMA) instead recommended measures to make it easier for Britons to compare the full costs of accounts, telling banks on Thursday to provide clearer information.

“Today’s findings will probably be seen positively by the larger banks as the CMA have not found evidence of excessive profits, have steered clear of proposing an end to free banking and have not suggested further divestments,” said Simon Hunt, PwC’s UK banking and capital markets leader.

Regulators and lawmakers are keen to break the dominance of Lloyds Banking Group (LLOY.L), Royal Bank of Scotland (RBS.L), Barclays (BARC.L) and HSBC (HSBA.L), which together control more than three quarters of current accounts and provide nine out of 10 business loans.

The competition watchdog launched a review of the market for personal current accounts and small business banking services in November last year.

In its preliminary recommendations, the CMA decided against forcing banks to charge fees for customers who are in credit, saying it found no convincing evidence that free accounts distorted competition.

So-called free banking has been criticised by consumer groups and lawmakers, who point out that banks make money because interest rates on personal current accounts are often lower than the Bank of England’s benchmark rate. Customers are also charged for going overdrawn without permission.

“Free in-credit banking is a con trick and it is disappointing that the CMA have decided that it should be allowed to continue,” said Andrew Tyrie, chairman of parliament’s Treasury Select Committee.

“It seems reasonable that millions of customers should be allowed to know how much they are being charged for having a bank account.”

Tyrie said the committee, which scrutinises Britain’s finance ministry and financial regulator, said it would take evidence from the CMA on Nov. 4 and would also examine the CMA’s arguments for not breaking up big banks.

The watchdog said it identified a number of competition concerns. It pointed to low levels of switching by customers and said that new products and new banks did not attract customers quickly enough.

The CMA recommended that banks prompt customers to review services they receive, make it easier to compare products, create a new price comparison website for small businesses, raise awareness of how to switch accounts and share information more effectively to help small firms to shop around.

The CMA will now consult with banks and other parties about the proposals before publishing final recommendations in April.

Richard Lloyds, executive director of consumer group Which? said the proposals didn’t go far enough.

“The regulator now has six months to find more radical ways to promote switching, improve information for consumers and punish those banks who fail to treat consumers fairly,” he said.

Paul Pester, chief executive of challenger bank TSB, said the recommendations were a “solid first step” but warned there was a “long way to go to bring real competition to UK banking”.

Pester said last week that British banks make between 7 billion and 8 billion pounds a year from personal current accounts.

Editing by Keith Weir and David Goodman

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