Banks Call Off Effort To Stall Industry Probe

By Mark Kleinman, City Editor

Britain's biggest banks have abandoned efforts to head off a full-blown competition inquiry following a lukewarm response from regulators.

Sky News understands that the Competition and Markets Authority (CMA) will announce on Thursday that it is proceeding with a formal probe into the supply of banking services to small and medium-sized companies (SMEs) and personal current accounts.

The decision is understood to have been approved by the CMA board last month.

An inquiry, which could last for up to two years, will kick the politically sensitive issue of banking competition into the post-general election long grass.

The four largest banks collectively supply more than three-quarters of personal current accounts and an even higher proportion of banking services to SMEs.

Insiders said anything other than a decision to launch a full probe would have been unexpected given the small number of occasions on which the competition watchdog had reversed provisional findings.

It will, however, also prolong uncertainty for investors in big UK banks more than three years after the Independent Commission on Banking unveiled reform proposals intended to stimulate competition in the industry.

Announcing its provisional decision to make a market investigation reference in July, the CMA said it had been presented with a package of remedies to improve SME competition by the four lenders which collectively dominate the industry.

"The CMA is...particularly interested in hearing views on the 'in principle' proposals to remedy suspected problems in the SME banking sector that have been put forward by Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland Group, which they consider should be implemented instead of a market investigation reference being made.

"These proposals would involve those banks giving the CMA undertakings to set up a comparison website to improve transparency; to establish new account opening standards to make it easier for SMEs switching banks to open accounts; and to take certain promotional measures to facilitate comparability and switching."

The regulator said at the time that it believed that a full investigation would be "more appropriate" than accepting the banks' proposals but said it remained "open to views".

Insiders said, however, that there had been no further substantive discussions about the remedies and that the quartet of banks had effectively "downed tools" on work about how they would be implemented.

No meaningful responses suggesting that the CMA should accept the remedies had been received by the authority, they added.

Ed Miliband, the Labour leader, has pledged to break up the biggest banks by forcing them to sell significant numbers of branches if he becomes Prime Minister.

A person close to the CMA played down the prospect of a full break-up of the banks as a way of boosting competition, however.

The CMA declined to comment ahead of Thursday's announcement.

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