On 3 November 2016, the FCA published its response (Response) to the Competition and Markets Authority’s (CMA) final report (Report) into the effectiveness of competition in the retail banking market.

The CMA’s investigation and the report

On 9 August 2016, the CMA published its final findings and remedies. The CMA’s investigation specifically focused on the supply of retail banking services to personal current account customers (including overdrafts) and to small/medium-sized enterprises (SMEs) in the UK (i.e. business current accounts and lending products).

In the Response the FCA identifies a number of emerging factors that may affect competition:

■ alternative providers of payment services and lending are beginning to compete with traditional banks;

■ growth in the uptake of mobile and digital banking; and

■ regulatory initiatives have been introduced, such as the ring-fencing of retail banks, which may affect the competition in this sector.

The Response highlighted that the CMA found that older, larger banks do not do enough to win and retain customers, and it is difficult for new providers to attract customers. The CMA indicated that this is affecting customers, particularly overdraft users and smaller businesses, and highlighted relevant issues including complex charging structures for personal and business current accounts and customers omitting to switch current accounts. In the report, the CMA recommended certain remedies, including the introduction of an “Open Banking standard” to share data which will permit authorised intermediaries to access information about banking services, prices, service quality and customer usage so that new services can be delivered to meet customers’ needs. The CMA also provided recommendations for other bodies, such as the FCA, to implement.

The CMA’s recommendations to FCA

Set out below is a summary of the key recommendations that the CMA made to the FCA in the report, and a summary of the FCA’s responses in the Response:

■ The FCA should act as an observer on the steering group that will implement the Open Banking standard. The FCA agreed and stated that this will directly support the rise of more innovative firms, products and services.

■ The FCA should require firms which provide personal and business current accounts and lending products to publish information on service quality so that it is accessible to consumers. The FCA agreed that this will facilitate consumer choice and incentivise such providers to improve their services. Accordingly, the FCA stated that it will establish a temporary stakeholder expert group to inform it about what information should be made available.

■ The FCA should consider researching “prompts” that are most likely to increase customer awareness and prompt customers to consider their banking arrangements. Furthermore, the CMA recommended that the FCA should use its rule-making powers to implement standardised prompts and that these should be monitored. The FCA stated that it was supportive of such research and agreed with the CMA’s recommendation.

■ The FCA should research measures to increase customers’ engagement with their overdraft usage and charges. The FCA stated that it will undertake research and design alerts that are effective in increasing customers’ awareness of their overdraft usage and that it also plans to explore whether further changes can be made to improve customer awareness of the features and costs of overdrafts.

■ The FCA should require providers to offer online tools that indicate whether a prospective customer may be eligible for an overdraft and that it assesses the effectiveness of the monthly maximum charge, which is a maximum charge on customers’ unarranged overdraft charges which will be implemented by the CMA. The CMA also recommended that the FCA looks into ways in which providers could engage with customers more during the account opening process and considers requiring providers to offer online tools which indicate a customer’s eligibility for an overdraft. The FCA has agreed to take action in response to the CMA’s recommendations.

■ The FCA should attend the British Bankers Association’s industry group tasked with standardising business current account opening procedures as an observer. The FCA agreed to attend the industry group as an observer in order to further its competition objective and, thereby, improve outcomes for SMEs.

Potential future work for the FCA

The FCA has committed to take action in relation to the recommendations put forward by the CMA in the report. However, the FCA also highlighted in the Response that its role and remit in the retail banking market goes beyond the remit of the CMA’s investigation. Given the importance of the retail banking market, the FCA has recognised that it needs to continue to ensure that consumers are protected and that competition works effectively. Accordingly, the FCA indicated that it may undertake further work into high-cost credit and the wider retail banking competitive landscape in order to better understand the risks to its objectives.

Next Steps

The FCA indicated that it will implement the recommendations listed in the Response and has asked that those wishing to express an interest in participating in the research outlined in the Response should contact it by email (retailbanking@fca.org.uk)