CMA Seeks to Boost Competition Between Retail Banks--Update

By Margot Patrick 

LONDON--Britain's competition regulator on Tuesday squashed any hopes that the country's large banks might be broken up, with the sector set for only minimal changes after a two-year review.

In a largely expected outcome, the Competition and Markets Authority said fees on overdrawn accounts should be capped, and banks should take it easier for customers to take their business elsewhere. The package of proposals could save consumers GBP1 billion ($1.44 billion) over the next five years, it said.

The antitrust regulator didn't make any radical proposals for a sector largely controlled by five lenders--Barclays PLC, HSBC Holdings PLC, Royal Bank of Scotland Group PLC, Lloyds Banking Group PLC and Santander UK. It said that breaking up banks "would not address the fundamental competition problems."

Some politicians and consumer groups had hoped that start-up and smaller banks would be given a leg up by the CMA when the review started in 2014. The U.K. government has been trying to foster greater banking competition since the financial crisis. But few inroads have been made into the sector's concentrated market share in checking accounts, mortgages and small business lending.

"Having more and smaller banks, which customers still couldn't easily choose between because of lack of transparency on fees and charges, would not significantly improve the market or give customers a better deal," the CMA said Tuesday.

It said banking charges need to be simpler and more transparent, tying in with a move globally by regulators to harness retail banking fees. In the U.S., the Consumer Financial Protection Bureau has been tightening rules around charges at retail banks and payday lenders and is expected to set new rules on checking account overdrafts later this year.

In the U.K., unarranged overdraft charges make banks around GBP1.2 billion in annual revenue, the CMA said.

The CMA said it would keep its hands off Britain's popular, "free in credit" checking accounts, where customers typically don't pay fees as long as they have money in their accounts. Lost interest on higher-return accounts means they're not really free, but "they do work well for many customers," the CMA said.

It said better online comparison tools would make it easier for customers to switch banks, and that small businesses could benefit from more transparent pricing around lending.

Analysts said the measures would limit banks's profits on retail fees but didn't hold any big surprises. So-called challenger banks said they were disappointed.

"Today's report falls a long way short of introducing the radical reforms the banking industry needs," said Paul Pester, chief executive officer at TSB Bank PLC, a bank spun out of Lloyds Banking Group after its government bailout. "The CMA has missed a golden opportunity and is on its way to short-changing millions of Brits by failing to go far enough in its measures to break the stranglehold of the 'Big Five'," he said.

Write to Margot Patrick at [e-mail]

(END) Dow Jones Newswires

May 17, 2016 06:03 ET (10:03 GMT)

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