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Competition Commission supports OFT's recommendations on SME banking

122/07    23 August 2007

The OFT welcomes the Competition Commission's provisional decision to lift price controls on the four main business banks in England and Wales. The provisional decision, following a review of the market by the OFT, will boost competition to provide essential banking services to small business customers.

The OFT's review and advice to the Competition Commission, also published today, investigated changes in the market since the Competition Commission's previous report in 2002. It found that there had been sufficient improvement in competition to warrant removing the transitional undertakings agreed by banks following the 2002 report.

See questions and answers for SME Banking review announcement.

Download SME banking - advice to the Competition Commission (pdf 599 kb).

However, the OFT's review also noted continuing concerns around low levels of switching in the market, and a lack of price transparency for customers. The OFT recommended that the banks continue to be subject to behavioural undertakings agreed in 2002, including an agreement to ensure that customers are able to switch accounts quickly and simply. The banks will also be required to provide the OFT with information on their prices and compliance with other undertakings.

John Fingleton, Chief Executive of the OFT, said:

'This is an important step in the development of further competition in the business banking sector. It will allow banks greater freedom to innovate and compete for customers, and will be most beneficial for those prepared to consider switching their banking service provider. The OFT will continue actively to monitor the market in future, and ensure the banks comply with their undertakings on switching and price transparency. If we find that competition is not working well for SMEs, we will consider further action.'

The provisional decision does not affect the ongoing market study or test case in relation to personal retail banking.

NOTES

1. Details of the Competition Commission's provisional decision are available here. The Competition Commission will consult on its decision until 28 September 2007 before reaching a final decision.

2. The 'transitional undertakings' were agreed following the Competition Commission's 2002 report on SME banking services. They required the four main banks in England & Wales to offer all SME customers either interest on credit balances at a specified rate (2.5 per cent below the Bank of England base rate or higher), or free core money transmission services (such as direct debit payments and cash transfers). The undertakings were signed by: Barclays Bank plc, HSBC Bank plc, Lloyds TSB Bank plc and the Royal Bank of Scotland Group plc (including National Westminster Bank).

3. A range of 'behavioural undertakings' were also agreed following the Competition Commission's 2002 report. These were aimed at increasing price transparency, reducing switching costs and limiting the bundling of current accounts with other banking services. The behavioural undertakings were signed by nine clearing bank groups in the UK: AIB Group (UK) plc, Bank of Ireland, Barclays Bank plc, Clydesdale Bank plc, HBOS plc, HSBC Bank plc, Lloyds TSB Bank plc, Northern Bank Ltd and the Royal Bank of Scotland Group plc.

4. The OFT launched its review of undertakings in January 2006 (see press release 14/06) and submitted advice to the Competition Commission in January 2007. The OFT's review was conducted under section 88 of the Fair Trading Act 1973, which continues to apply by virtue of Schedule 24 of the Enterprise Act 2002, and under section 5 of the Enterprise Act 2002, which gives the OFT power to obtain and compile information about matters relating to the carrying out of its functions so that it can take informed decisions and carry out its other functions effectively.

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