Competition Commission Lifts Price Controls On Main UK Banks

by Robin Pilgrim, LawAndTax-News.com, London

23 August 2007

It emerged on Thursday that the Competition Commission has decided to lift price controls on the four main business banks in England and Wales, namely Barclays Bank, HSBC, Lloyds TSB, and the Royal Bank of Scotland.

In a statement, the Commission confirmed that:

"On the basis of advice from the Office of Fair Trading (OFT), the Competition Commission (CC) has provisionally decided to release the UK’s four largest clearing banks that is Barclays Bank Plc (Barclays), HSBC Bank Plc (HSBC), Lloyds TSB Bank Plc (LloydsTSB) and the Royal Bank of Scotland Group Plc (the four banks), from most of the Transitional Undertakings given by them in 2002."

"These undertakings require the banks to offer small and medium-sized enterprises (SME) an account that pays interest on credit balances of at least 2.5 percentage points below base rate or does not levy standing charges or charges for core money transmission services, or both."

"The CC has also provisionally decided to retain undertaking 11 of the Transitional Undertakings, which requires the four banks to notify the OFT and to publish changes in charges. The Behavioural Undertakings, designed to make the market more competitive by making switching easier and faster, by making prices more transparent and by prohibiting the bundling of different products and services, will remain in place. The CC has also provisionally decided to recommend that the OFT reinforce the awareness and the impact of the Behavioural Undertakings."

"The CC will take a final decision following consideration of representations received in response to this Notice."

The OFT welcomed the provisional decision to lift price controls, arguing that it would boost competition in the provision of essential banking services to small business customers.

The OFT's review and advice to the Competition Commission, also published on Thursday, investigated changes in the market since the 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.

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.

John Fingleton, Chief Executive of the OFT, observed that:

"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."

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