Challenger banks claim competition probe is not tough enough

Challenger banks claim competition probe is not tough enough

Britain’s small banks believe the competition investigation will not make a
serious difference to the industry, and big banks will be let off lightly

Challenger (Hamburg: 4SE.HM – news) banks have urged the competition watchdog to have a “major rethink”
about high street giants Lloyds and RBS (LSE: RBS.L – news) as part of their probe into the
current account and small business banking markets.

The CMA’s investigation is believed to lack rigour and is unlikely to lead to
any significant changes in the market, sources at several challenger banks
have told The Daily Telegraph .

Regulators
launched an investigation into the banks last year in a probe which
focuses on two markets: current accounts, and small business banking.

The CMA is looking for ways to encourage shopping around as few
Britons ever move their current account , and the vast majority of small
business owners use the same institution for business and personal banking.

“We can see from the questions the CMA is asking that they’re not being very
ambitious. They are taking a more conservative approach,” said an insider at
one challenger bank.

“The big banks have done a fantastic job on the CMA. We are not holding our
breath for anything to come out of it.”

The attack on the CMA’s probe comes after the challenger
banks met the Treasury last week to ask officials to exempt them from a
new 8pc tax on banks. Treasury officials agreed to consider tweaking the tax
in future, either to raise the threshold at which it comes into force, or to
reduce the rate.

Nine challengers met the CMA earlier this year, as the authorities recognised
that the small banks’ voices could be drowned out by the bigger players with
more to lose from the inquiry.

The minutes of the round-table event show challengers are worried about the
current state of the market. “Unless there was a major rethink, Lloyds would
continue to dominate the current account and mortgage market ,and RBS the
SME and corporate banking market,” the minutes said.

Paul
Lynam, the chief of Secure Trust Bank , said the authorities could make a
series of regulatory changes “overnight” to open up the market to more
competition.

He said the government should follow the US’ approach and only apply the
tough Basel III capital rules to the biggest banks, rather than adding
to small banks’ costs, as the small banks do not represent a risk to the
wider financial system if they fail.

Mr Lynam also said banks with a balance sheet of less than £10bn should not be
subject to the full rules, again because the regulations are designed for
banks whose failure could wreck the economy, rather than modestly-sized
lenders.

“By definition the smaller firms do not pose systemic risks therefore there is
no logic in requiring them to slavishly adhere to regulations to prevent
systemic risks arising,” he said.

The CMA denied that its investigation lacks rigour. The provisional report is
expected to come out next month.

Challenger banks claim competition probe is not tough enough