The UK's banking sector is set to face a fresh competition inquiry that could lead to sweeping changes across the industry with British lenders at risk of being broken up.
As expected, in an initial into the industry published this morning, the Competition and Markets Authority (CMA) decided that there should be an "in-depth" investigation to consider a host of possible changes to the small business banking market and the current accounts sector in a bid to boost consumer and SME choice.
This means that leading high street banks could be subject to further break-up, with state-backed banks RBS and Lloyds most vulnerable to the demands of regulators because of their large market share.
The CMA has powers to order structural remedies, such as breaking up banks deemed to be too dominant, as well as to call for changes that would lead to improving customers’ access to information.
"Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy. However, 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," said Alex Chisholm, CMA chief executive.
The report calls for an in-depth probe by an expert CMA group to look at the market in detail before identifying appropriate measures. The watchdog said it will consult on its provisional decision for a new inquiry before coming to a final decision.
The sector has come under increased pressure from politicians, who have repeatedly called for an end to the dominance 'big four' banks - HSBC, Lloyds, RBS, and Barclays - which make up 75 per cent of current or checking accounts in the UK.
Figures released this week show that measures introduced to simplify the bank switching process in the UK have resulted in a 16 per cent increase in people moving accounts, but the figure is significantly lower than industry analysis had anticipate
However despite a number of new entrants and initiatives introduced to increase transparency and make it easier to switch banks, consumer groups such as Which? have remained critical, saying that the changes did not go far enough to meet the needs of personal consumers or small and medium sized enterprises, a view shared by the regulators.
“Whilst there have been some recent improvements, for small businesses, competition in the banking system isn’t working as it should. The market is still concentrated, switching between providers is low and those running small businesses don’t believe there is much differentiation in terms of the products on offer and the standard of service they receive," said Christopher Woolard, director of policy, risk and research at the Financial Conduct Authority (FCA), who worked with the CMA on the report.