UK: CMA Identifies Competition Concerns In Retail Banking

Last Updated: 14 November 2014
Article by Sam Szlezinger and Rebecca Owen-Howes

We reported on 6 November that the Competition and Markets Authority (CMA) has opened a market investigation into personal current accounts (PCAs) and SME banking (retail banking market investigation). On 12 November, the CMA published details of the members of the investigation group and the timetable for the investigation, as well as publishing the Issues Statement which explains the scope of the investigation and possible competition concerns which the CMA will investigate. The deadline for comments to be submitted to the CMA on the Issues Statement is 3 December.

Timetable going forward

The main steps in the CMA's investigation are summarised in the table below. As we noted in our earlier report, the CMA is also reviewing the undertakings given by nine banks in 2002 relating to SME banking. Although this is a separate investigation, the CMA has said that its reviews of both the retail banking sector and the SME banking undertakings will be carried out concurrently by the same investigation group and that where possible both will be dealt within the same information requests to parties.

Main steps in investigation


CMA makes market investigation reference/decision to review 2002 SME banking undertakings

6 November 2014

CMA publishes Issues Statement

12 November 2014

CMA publishes relevant working papers and annotated Issues Statement

March to June 2015

CMA publishes provisional findings and possible remedies notice/provisional decision on SME banking undertakings

September 2015

CMA publishes provisional decision on remedies

January 2016

CMA publishes final report

April 2016

Statutory deadline

5 May 2016

Key points

In the Issues Statement, the CMA reiterates and expands on a number of points which it made in its reference decision of 6 November. In carrying out its investigation, the CMA  will take particular account of the following factors:

(a) Co-operation with the regulators — there is a danger that a lack of co-ordination between regulators may impose an unnecessary burden on banks - the CMA intends to ensure effective co-operation with other regulators, namely the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR), who are themselves involved in ongoing work in this sector to address this concern.

(b) Wealth of evidence — the sector has already been the subject of in-depth reviews since 2000 (for example, the 2000 Cruickshank report, the 2002 Competition Commission market investigation into SME banking and the 2008 Vickers Report) and the CMA has said that it will take account of the findings of previous reviews and reports, as appropriate.

(c) Changes in the industry — the CMA recognises that competition in in the retail banking sector is developing and will continue to do so. Recently, there have been bank and branch divestments under the EU state aid rules, the introduction of current account switching services (CASS), the establishment of the PSR and the increase in online and mobile banking. The CMA will need to anticipate how these changes will affect the markets in considering possible remedies to address any competition concerns it identifies.

(d) Market definition - it seems likely that PCAs, BCAs and SME business loans constitute separate product markets and that the geographic scope of each of these will be at least as wide as (i) England and Wales; (ii) Scotland; and (iii) Northern Ireland, if not Great Britain or the UK.    

Harm to consumers 

At this stage in its investigation, the CMA has identified the following three theories of harm which it believes could lead to poor outcomes for customers:

  • impediments to customers' ability to effectively shop around, choose and switch products/suppliers;
  • concentration giving rise to market power of some banks; and
  • barriers to entry and expansion.

These three theories are interrelated. They are based on the CMA's understanding of key market characteristics, including the importance for customers of a long-term relationship with their bank, the extensive local branch network of the four largest banks and the reliance by new entrants and smaller banks on the larger incumbent banks for key inputs, such as finance, IT and customer creditworthiness information. 

Lack of switching by customers 

Possible impediments to customers' willingness to switch banks include the lack of accessible and transparent information on the price, quality and service  of competing PCAs, BCAs and other SME products. The product and pricing structures offered by banks may also be impediments to switching in that they may exploit customers' conservative  behaviour leading to higher prices or reduced quality and account differentiation. This may also result from the actual or perceived costs and risks of switching and the rolling contract nature of PCAs and BCAs.

Market power of incumbents

The CMA has confirmed that, since the July 2014  market studies found no evidence of co-ordinated behaviour by banks, it will not consider this aspect further. The investigation will therefore concern banks' market power that arises as a result of  acting independently. The CMA is likely to make use of international comparisons as part of its analysis.

Barriers to entry and expansion

The interrelationship between the different theories of harm can be seen here as barriers to entry can lead to market power (theory of harm 2), and impediments to customer switching (theory of harm 1) can be a significant barrier. Additional potential barriers to entry/expansion include the following: regulation (such as the capital and liquidity requirements for PCAs and BCAs); economies of scale (including the need for a branch network); the need to access finance and payment systems; cross-selling of other products by the incumbents and other practices adopted by the incumbents, such as cross-subsidising between products and bundling of products. The CMA's analysis will focus in the first instance on case studies of past entry and expansion in the industry.


The CMA must work to a tight timetable if it is to meet the statutory deadline of May 2016. This initial stage of the investigation is an intensive information-gathering period in which the CMA will be meeting with interested parties and analysing many responses to detailed and lengthy information requests, as well as the comments it receives on its Issues Statement. The annotated Issues Statement in the first half of 2015 will reflect the views it will have received and the evidence it will have reviewed between now and then.

That evidence is likely to be informed by behavioural economics to understand the most likely effective remedies given the biases demonstrated by customers. The importance of cognitive limitations and behavioural biases is made clear in the section of the Issues Statement dealing with possible impediments to customers' ability to effectively shop around, choose and switch products or banks.  The argument is that the free core current account services for PCAs and equivalent initial offers on BCAs cause customers to behave in certain ways which inhibit switching (for example, underestimating their chances of going into overdraft and not as a result considering overdraft charges when choosing their bank and account type and generally give rise to a belief that there is no incentive to switch, a belief  from which the major banks benefit to the detriment of new entrants).  If the CMA requires this to change, banks may no longer  be able to exploit these behavioural biases.  A number of the smaller banks, including Virgin Money and Tesco Bank, are advocating a move away from  the "free if in credit" current account banking model which they view as a major impediment to the success of new entrant banks. Is there an argument to say that behavioural economics could be interfering too much with personal choices?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
21 Sep 2017, Seminar, London, UK

Is there such a thing as "energy law"? What do "energy lawyers" do? And why should it be of interest to anyone else?

28 Sep 2017, Seminar, London, UK

On 26 July the FCA published its long-expected consultation paper on the extension of the SMCR to all FCA-authorised firms. The so-called "core regime" introduces the key concepts of regulator-approved senior managers, firm-approved certification staff and conduct rules applicable to virtually all staff.

3 Oct 2017, Conference, Zurich, Switzerland

As the founding Partner of the Europe-Iran Forum, Dentons Europe will once again support this year’s event. This compelling event which explores all Iran-related topics will take place in Zürich on 3rd and 4th October.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.