SUPPLY OF BANKING SERVICES BY CLEARING BANKS TO SMALL AND MEDIUM SIZED ENTERPRISES (SMES)

STATEMENT OF HYPOTHETICAL REMEDIES

The Competition Commission, as part of its monopoly inquiry into the supply of banking services by clearing banks to SMEs, is now seeking further comments on possible remedies should it conclude that there are any matters which operate against the public interest.

The Commission is still pursuing its investigation and has as yet reached no conclusion on any matter. In view of the timescale involved, and in order to help the Commission assess the wider implications of any recommendations it might wish to propose, in the event that it reached adverse public interest findings, it is now inviting comments on the practicality and effectiveness of the suggestions set out in a Statement of Hypothetical Remedies available from the Commission. The Commission is not, however, at this stage proposing one or more of the remedies set out in the Statement: they are for comment and discussion. The possible remedies relate to:

(a) Possible regulation of charges, terms, conditions or profits, for example a requirement concerning rates of interest payable on deposit accounts and current accounts; a prohibition on discrimination of charges between personal and business accounts and/or between personal and business activities; requirements concerning charges for clearing services and portable sort codes; or price controls.

(b) Possible behavioural remedies primarily to reduce or remove any barriers to entry, including assistance to switching; prohibition of any requirement to hold a current account as a condition for holding a deposit account or loan; banks to inform customers of alternative suppliers of banking services, including a requirement to contribute to and distribute comparative price information; improved transparency of risk assessment and bank statements.

(c) Possible behavioural remedies to safeguard SMEs in their relationship with their banks including possible remedies in relation to the amount of security taken by banks, greater clarity of terms, and in relation to banks’ relationships with ethnic minorities.

(d) Recommendation that the government consider a tax to reduce high profits or a fund to be financed by the clearing banks to assist competition.

(e) If other remedies prove to be impractical or not fully effective, the Commission may need to consider possible structural remedies such as divestment of branches (to other banks): this could, however, be disruptive to customers and the Commission would need to consider, and welcome views on, whether this would be appropriate or proportionate to any adverse effects identified.

The complete statement may be obtained from the Competition Commission web site: www.competition-commission.org.uk/inquiries/14-01r.htm or, in writing, from the Reference Secretary (Banks), Competition Commission, Room 504, New Court, 48 Carey Street, London, WC2A 2JT.

Note to editors

The inquiry was referred to the Competition Commission by Stephen Byers, Secretary of State for Trade and Industry, and Gordon Brown, Chancellor of the Exchequer, under sections 47(1), 49(1) and 51(1) of the Fair Trading Act 1973 (see DTI press notice P/2000/194).
On 8 November 2000, the Commission published a statement of issues, highlighting those matters which had been identified by the investigating group for further consideration. See Competition Commission Press Notice 57/00.
On 6 March 2001, the Commission published a statement of provisional conclusions on complex monopoly: see Competition Commission Press Notice 09/01.
Dr Derek Morris, Chairman of the Commission, is heading the inquiry. The other members of the group are Cosmo Graham, David Hammond, Elizabeth Monck and Roger Munson.
Further information can be obtained from the Commission website at www.competition-commission.org.uk/inquiries/ref.htm
Enquiries should be directed to: Francis Royle, Press Officer: Tel: 020 7271 0242