AIB, BoI among institutions criticised in report into UK banks

AIB and Bank of Ireland are among a number of banks who have been criticised in the UK for not working hard enough to compete for customers.

However, in a move that will be welcomed by Britain’s biggest financial institutions, none are to be broken up or forced to ditch free banking services to improve competition in the industry.

The Competition and Markets Authority (CMA), which issued a report into the banking sector on Thursday, has instead recommended measures to make it easier for customers to compare the full costs of accounts, telling banks on Thursday to provide clearer information.

The competition watchdog launched a review of the market for personal current accounts and small business banking services in November last year.

The investigation began after the CMA’s predecessor, the Office of Fair Trading, found possible competition concerns in SME banking in the market.

In its preliminary recommendations, the CMA said it had decided against forcing banks to charge fees for customers who are in credit, saying it saw no convincing evidence that free accounts distorted competition.

The watchdog said it had identified a number of competition problems in both the personal current account (PCA) and small-and-medium-sized enterprise (SME) banking markets. It said low levels of customer switching meant banks were not being put under enough competitive pressure, and new products and new banks did not attract customers quickly enough.

The report found that the four largest banks (Lloyds, HSBC, Royal Bank of Scotland, and Barclays) in Great Britain accounted for approximately 70 per cent of active personal accounts and 80 per cent of active business accounts in 2014. The four largest banks in Northern Ireland (Royal Bank of Scotland/Ulster Bank, Danske, Santander and AIB) similarly account for approximately 70 per cent of active personal accounts while RBS/Ulster Bank, Danske, BoI and AIB account for over 80 per cent of business accounts.

The CMA’s investigation is looking separately at the banking sector Northern Ireland, but said it had made the same findings for the North as it had for Great Britain.

The CMA recommended banks prompt customers to review the services they receive, make it easier to compare products, create a new price comparison website for small firms, raise public awareness of how to switch accounts and share information more effectively to make it easier for small firms to shop around.

The investigation found bank customers fear that switching their current account to a new bank will be complicated, time-consuming and risky. The result of this is that just per cent of customers switched their personal account last year.

The review also discovered that accounts which are more expensive and below average quality are not losing customers to cheaper and better alternatives at the rate that would be expected in a well-functioning market.

The lack of competitive pressure in SME banking was also significant with more than 50 per cent of start-ups choosing the bank with which they have a personal current account. In addition, over 90 per ent of SMEs kept their account when the initial free banking period came to an end, and a similar percentage did not shop around when looking for finance.

The CMA will now consult with banks and other parties about the proposals before publishing its final recommendations next April.

“Today’s findings will probably be seen positively by the larger banks as the CMA have not found evidence of excessive profits, have steered clear of proposing an end to free banking and have not suggested further divestments,” said Simon Hunt, PwC’s UK banking and capital markets leader.

AIB GB said it believed the regulator’s findings would be good for the banking sector.

“Owner managed businesses looking to grow require active rather than just passive support from their banks. This initiative will make it easier for British businesses to move to banking partners that are more single- minded in their focus on the unique challenges that businesses owners and managers face. We believe this will have a positive impact on business productivity, confidence and risk management for this hugely important sector of our economy.” said the group’s head Gerard O’Keeffe.

Richard Lloyds, executive director of consumer group Which? said the proposals didn’t go far enough.

“The regulator now has six months to find more radical ways to promote switching, improve information for consumers and punish those banks who fail to treat consumers fairly,” he said.

Additional reporting: Reuters