One challenger bank boss said that the concentration risk in the market will take “decades” to unwind, speaking at a Treasury Select Committee hearing earlier today.
Meanwhile, a former Competition Commission member said that the provisional recommendations issued by the CMA in May failed to improve opportunities for challengers.
Enlightenment Economics founder, professor Diane Coyle, told MPs: “I could weep with disappointment. This opportunity looks like it is being squandered.”
Last month, the CMA pushed back against claims that it had failed to tackle issues like capital requirements for smaller lenders, with retail banking investigation chair Alistair Smith stating the CMA had little jurisdiction over such topics.
However, Coyle slammed the response: “I don't think that's a reason for not focusing the analysis on the real issues, which they failed to do.”
And Secure Trust Bank chief executive Paul Lynam cited a challenger bank high level advisory group, which has quarterly meetings with the Treasury, as well as Bank of England letters to the European Banking Association, as evidence of recognition of broader problems.
“Yet the CMA have issued a press release which says what is really holding [challengers] back is their ability to highlight to customers how new offerings compare with their current deal,” Lynam said.
“The challenger banks have never said this to the CMA. The challenger banks have said that what is really holding us back is the situation on capital, the funding, taxation and infrastructure problems. So quite why they are saying what they are saying, I really don't know.”
Lynam estimated that 15 institutions now offer current account facilities to retail customers, down from almost 50 when he began his banking career 30 years ago.
However, he added that the prospects of resurrecting substantial competition in the market remain distant.
“It will take a couple of decades to unwind it, but that can only be unwound if there is a genuinely level playing field in respect of capital, funding and regulation.”
In the meantime, Financial Services Consumer Panel member Caroline Barr told MPs that proposed reforms, which include asking banks to set a maximum monthly overdraft charge and ease current account transfers focus too much on the role of the consumer.
“This is the reverse of duty of care, it's saying that consumers need to take more responsibility for the fact that the market isn't working well, or that they've bought the wrong product, or that they've stayed in a product beyond its teaser rate,” Barr said.
"But consumers are confused by the amount of data they receive and now the CMA is expecting consumers to sit down when they come home from work in the evening with a price comparison website for their fuel, their telecommunications, their mortgage, their car insurance, their pet insurance and now their [current accounts]. Real life doesn't work that way.”
Coyle agreed: “There are such profound asymmetries of information in financial services that You can't rely on consumers being able to resolve those by themselves, it won't make the market work effectively.”
MPs hope to interrogate the CMA over its work on banking before Parliament takes its summer recess in July. A spokesman for the watchdog declined to comment.