FCA to improve competition in the current account market

The Financial Conduct Authority (FCA) has today announced that it will take action to improve competition in the current account market. This follows a series of recommendations which were proposed by the Competition and Markets Authority (CMA) as part of its investigation into retail banking.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said “It’s important that competition works well in the retail banking sector. Our work, taking action in response to the CMA’s recommendations, will help to further drive effective competition by helping customers and small businesses to take more control of their finances. Our role in regulating retail banking markets goes beyond the remedies the CMA has asked us to take forward, and we will continue to look more broadly at how well these markets work, with a particular focus planned on high-cost credit including overdrafts. We will also be looking at wider retail banking business models.”

The FCA will take action in a number of areas:

• Improved transparency for overdraft users: The CMA recommended that the FCA research, test and implement measures to increase consumers’ engagement with their overdraft use and charges, and the FCA will take action in response to this recommendation.  The FCA will also consider the need for rules in relation to the proposed Monthly Maximum Charge (MMC) and will begin to collect data in 2017 in order to do this. In addition, beyond the scope of the CMA’s recommendations, the FCA will also undertake work on overdrafts (both arranged and unarranged).  This will fall within the FCA’s future work on high-cost credit and the FCA will publish more detail on the scope of this work in a Call for Input later this year.
• Promoting innovation: The FCA welcomes the introduction of the Open Banking standard and will take forward the other recommendations from the CMA, which includes acting as an observer on the Open Banking steering group. 
• Improving service and prompting increased customer engagement: To help consumers assess the differences in service quality between banks, the FCA will consider requiring banks to publish better, comparable information. The FCA will set up an expert group to consider what information should be published. 

 The CMA also recommended that the FCA develop and test “prompts” encouraging consumers to consider their banking arrangements.  For both individual consumers and small and medium-sized enterprises, the FCA will research which prompts are most likely to help consumers understand their account usage and how much their account costs, and encourage them to consider switching. This research and testing will begin in early 2017.

Additionally, the FCA are continuing to consider the competition and conduct implications of the business model links between current accounts and other retail banking products.  This work is still being scoped as part of our 2017/18 business planning process and the FCA will make a further statement on this.

In response to the announcement the Citizens Advice response to Financial Conduct Authority announcement on overdrafts Citizens Advice’s Chief Executive, Gillian Guy, said “Overdraft charges can quickly add up to unmanageable debt. An unplanned expense that pushes someone into their overdraft by just a few pounds can lead to them being trapped in a cycle of daily charges. We helped people with 52,000 overdraft debt problems in the last year – in some cases people are paying more in overdraft charges than they would for a payday loan.