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Competition Law

Analysis - debate - current awareness

Field Fisher Waterhouse , 18 JUL 2014


John Cassels


Bankers are back in the news in the UK today as the Competition and Markets Authority (CMA) announced its provisional recommendation for a market investigation into the banking sector, looking specifically at services provided for personal consumer accounts (PCAs) and small and medium sized enterprises (SMEs). The markets are worth £8bn and £2bn respectively.

The SME banking case was opened on 19 June last year, with the CMA beginning to investigate PCAs on 4 April this year. The consultation into their provisional decision (covering both investigations) will remain open until 17 September 2014, during which time interested parties are invited to make written representations. It is expected to publish its final decision in relation to a market investigation reference in the autumn.

The CMA's investigation into the banking sector was triggered by a number of features that it thinks point towards entrenched anti-competitiveness in the market, centring on:

  • Barriers to entry and expansion: there have been only three main new entrants in recent years (Metro Bank, Tesco bank and TSB (divested by Lloyds)) and the smaller banks have just a 5% market share, of which TSB holds 4.2%;
  • Despite only 60% satisfaction with the 'big 4' banks amongst consumers and SMEs, market shares have remained stable, showing low (only 3% of consumers switch each year) and static switching levels and entrenched market share; and
  • Lack of transparency, making comparisons and finding distinctions between the big banks very difficult.

Barclays, HSBC, Lloyds and RBS have all offered commitments and remedies in the hope of persuading the CMA that these will negate the need for a full-on market investigation. However the CMA has said that it prefers a market investigation reference, a position which seems unlikely to change.

If referred, the CMA has a number of remedies available to it. These are split into recommendations (the weakest option), behavioural remedies (such as controlling outcomes and enabling measures) and structural remedies (principally concerned with forcing parties to sell off parts of their business, and the most severe remedy available).

A market investigation would last for a maximum of two years, with provisional findings being published around a year after the reference date. If referred, the market investigation will be unlikely to conclude before April 2016, with the potential for it to go on until November 2016.

The political sensitivities of markets like energy and financial services unfortunately make it close to impossible for the CMA to reach any decision other than a full reference.

If you are interested in these issues, please do not hesitate to contact us.
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