Retail banking shake-up just ‘tinkering round the edges’, say critics

metro bank

The Competition and Markets Authority (CMA) faced sharp criticism from consumer groups and challenger banks after it announced a package of retail banking reforms that it was claimed leave too much power in the hands of the high-street giants reports The Telegraph.

Richard Lloyd, executive director of Which?, branded the inquiry “weak” and claimed it will “leave it to consumers to change uncompetitive markets” as he called for reform to the CMA itself.

The chairman of the influential Treasury Select Committee, Andrew Tyrie, said watchdogs would be called to justify their plans to MPs in autumn, adding that he was “not optimistic” they would deliver the necessary boost to competition.

The regulator concluded its two-year investigation with proposals it said would trigger an “open banking revolution” by providing customers and a new generation of financial service providers with better information about accounts.

The CMA refused calls to propose looser capital requirements for smaller challenger banks, however. The rules have prompted protests that claim they are an unfair barrier to retail competition with dominant institutions such as Lloyds and Barclays that play a major role in the financial system as well as on the high street.

Craig Donaldson, chief executive of Metro Bank, said he was “astonished” by the CMA’s decision. He claimed the CMA had squandered “a rare opportunity to support and develop competition in banking” and instead merely “tinkered around the edges”.

Metro Bank’s disappointment was echoed by rival Aldermore. It said the CMA’s failure to act on capital requirements meant challenger banks would struggle to increase lending to small businesses, amid widespread concern that since the financial crisis the major banks have made it harder for them to get credit.

Aldermore chief executive Phillip Monks warned without a “fair market” there was “a very real danger that many SMEs will not have access to the banking services they need”.

Business groups were also dissatisfied by the proposed changes to retail banking. The British Chambers of Commerce, which represents businesses employing more than five million people, said the regulator had pulled its punches and failed to address structural problems in the market.

In lieu of major reforms, the BCC called on the Government to boost the availability and awareness of alternative sources of finance for small businesses turned down by high street banks.

For consumers, the CMA said its proposals would increase rates of switching by making it easier, and therefore force high street banks to compete more aggressively. Fewer than one in 30 bank customers moves their account in any given year under the current rules.

Banks will also be forced to alert customers when they face unarranged overdraft charges and offer a grace period to allow them to avoid being stung. There were no measures to end Britain’s system of free banking for customers in credit, which Post Office Money said means paying “unclear, excessive fees” on other services and is a barrier to innovation by challengers.

Shares in the big banks rose following publication of the CMA’s report but PwC said the watchdog’s bid to unleash a revolution in mobile banking could prove costly. It also suggested the issue of capital requirements for challengers could yet be revisited by the Prudential Regulation Authority, the Bank of England and the Treasury.

The British Bankers’ Association, which represents big banks and challengers, said that it recognised “more work needs to be done to create a level playing field by supporting new banks wanting to set up business, as well as helping to grow established banks”.