Commercial awareness: banking competition investigation

Our banker, lawyer, accountant and consultant consider the latest banking controversy

The Competition and Markets Authority (CMA) has announced that it's going to conduct a full investigation into the competitiveness of the market for consumer and small business banking services in the UK.

There have been concerns for a long time that these markets are overly dominated by UK retail banking's "big four": Barclays, HSBC, Lloyds, and RBS/Natwest, and these concerns have been exacerbated by recent retail banking scandals - particularly the PPI and interest rate swap misselling sagas.

In its announcement about the investigation, the CMA highlighted barriers to account switching as a focus: "We are particularly focusing on the relatively small numbers of customers who switch banks, the difficulties they face in comparing offers, the persistently high market share of the bigger providers, and the barriers that face their newer and smaller competitors."

If the CMA's investigations find that there is restriction of competition, it has the power to introduce remedies, including breaking up some of the dominant banks. The CMA is due to produce its final report by 5 May 2016.

Thinking like a...


Money for nothing?

There's a tendency in the UK to think that banking services should come for free when in fact providing these costs money, just like the provision of any other consumer service.

However, the CMA has stated that it thinks that what might be the cause of some of the problems that have arisen in retail and small business banking is a "lack of transparency". Translation: a lack of upfront fees, leading to banks using potentially more confusing ways to fund their services. So this investigation could lead to new banking charges, but with luck also a clearer bank/customer relationship.

We don't need no regulation

These kind of regulatory investigations - and there's been a lot of them recently - are currently providing a lot of work for City lawyers. Ashurst, Clifford Chance, Freshfields and Linklaters have all reportedly been instructed by various parties to work on this one.

On this kind of matter, lawyers will advise parties on how good their legal case is and assist with any legal proceedings that result from the investigation - for example, if one of the 'big four" banks decides to challenge the investigation's result and/or any remedy prescribed by the CMA.

Accounting errors

This competition investigation is likely to be watched with some interest by accountants in the UK, and eyes in retail banking might also turn to our industry at the same time. This is because in accounting at the moment there's ongoing discussion around whether it's excessively dominated by our accounting "big four": accounting and professional services firms Deloitte, Ernst & Young, KMPG and PwC.

The EU thinks it is, and has put steps in place to open up the market more, including requiring large companies to switch auditors regularly, but change is only happening relatively slowly.


It's the economy, stupid

Economic analysis is a huge part of competition investigations because the authorities conducting these need to understand in detail how a particular market works.

This has led to some consulting firms providing an economic consulting service where they provide this kind of analysis, usually for corporate clients presenting a case before a competition authority. This could be a defence against a finding that they're currently too dominant in a particular market, an argument that a planned merger wouldn't raise any competition concerns, or a defence against an accusation of price-fixing.