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OFT raises competition concerns over SME finance

The Office of Fair Trading has raised concerns there is a lack of competition in the banking services offered to small and medium-sized enterprises.

The OFT first set out plans to examine the retail banking sector, including SME banking, in July 2012.

In an update on its SME banking market study, published today, the OFT says the provision of business current accounts is concentrated among a small number of banks; that smaller banks and new entrants face barriers to entry and SMEs rarely shop around for providers. 

The OFT says two specific issues have emerged during the study:

  • It believes banks are delaying providing documents to allow SMEs to source finance from alternatives such as peer to peer lenders. It says it has discussed the issued wth the British Bankers Association and expects the issue to be resolved.
  • It has started an investigation into possible non-compliance with a 2002 Competition Commission review, which stated banks should not require businesses to hold a current account in order to access a business loan.

Both issues will be reviewed in July with further action possible if they remain unresolved.

OFT chief executive Vivienne Dews says: “SMEs are a vital driver of growth in the UK. They need access to banking services and loans which meet their needs.

“Our work suggests there may be competition concerns in this sector. We will continue our work over the coming weeks and hand this on to the CMA to conclude the analysis, and decide on the next steps.”

“We have also taken action in two areas to safeguard and improve competition, including from innovative providers. We welcome the co-operation we have already seen from the industry and the steps that are now being taken. However, further action will follow if concerns in these areas are not addressed.”

The OFT is being disbanded on 1 April. The FCA will take over consumer credit regulation, while a new body, the Competition and Markets Authority, will take over the OFT’s competition and consumer role.

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