CMA publishes final recommendations for banking sector reform
Following 21 months of investigation and consultation, the Competition and Markets Authority (CMA) has released its final recommendations on changes to the retail banking sector, with the aim of helping individuals and small businesses who use banking services.
The CMA concluded that ‘older and larger banks do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow’, and recommends a package of changes, termed ‘Open Banking’, to ‘ensure that customers benefit from technological advances and that new entrants and smaller providers are able to compete more fairly’.
The key measures include:
- Requiring banks to implement Open Banking by early 2018, to accelerate technological change in the UK retail banking sector. Open Banking will permit personal customers and small businesses to share their data securely with other banks and with third parties, enabling them to manage their accounts with multiple providers through a single digital ‘app’. This will allow them to take more control of their funds (for example, to avoid overdraft charges and manage cashflow), and will enable them to compare products on the basis of their own requirements.
- Requiring banks to publish ‘trustworthy and objective information on quality of service on their websites and in branches, so that customers can see how their own bank shapes up’.
- Requiring banks to send out suitable periodic and event-based ‘prompts’, such as on the closure of a local branch or an increase in charges, to remind their customers to review whether they are getting the best value, and switch banks if not.
Alasdair Smith, chair of the retail banking investigation, said: ‘The reforms we have announced . . . will shake up retail banking for years to come, and ensure that both personal customers and small businesses get a better deal from their banks.
‘We are breaking down the barriers which have made it too easy for established banks to hold on to their customers. Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy.’
The Federation of Small Businesses (FSB) welcomed the recommendations. National Chairman, Mike Cherry, said: ‘We welcome the package of measures aimed at improving the Current Account Switching Service (CASS) and reassuring small businesses it is a quick, easy and safe way to switch accounts.
‘Current levels of switching among small firms are far too low, with only 4% of FSB members switching in the last year. We look forward to continuing to work with all organisations to raise awareness of CASS across the small business community.’