The Competition and Markets Authority has launched an inquiry into the personal current account and SME retail banking sectors.
Following a consultation period launched in July, the CMA says it has concerns about the effectiveness of competition in the sectors, which it says are dominated by a handful of high-street banks.
Other concerns listed in the CMA announcement include the low number of customers switching their current accounts and the complex overdraft charges that it says confuse consumers who wish to make comparisons between banks.
It also notes there has been “very little movement over time” in the market shares of the four largest banks, which provide more than 75 per cent of personal and business current accounts.
CMA chief executive Alex Chisholm says: “Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy.
“After carefully considering the consultation responses, most of which supported a market investigation, we remain of the view that there should be a full market investigation into the sector, conducted by a market reference group drawn from the CMA’s expert panel of independent members. The group will investigate in detail what action, if any, may be needed to improve competition for the benefit of personal and small business customers.”
Labour’s Shadow Chancellor Ed Balls says: “Ed Miliband and I have repeatedly called for an inquiry into bank competition, so we welcome this announcement from the CMA. Ministers claim there is no problem to solve, but everyone else recognises that we have a lack of competition in our banking sector.
“As we said earlier this year, in the next parliament we need to see at least two new challenger banks and a market share test to ensure the market stays competitive for the long term, which is why we now welcome this independent CMA inquiry.”