Price controls on SME banking may be lifted

United Kingdom

On 23 August 2007 the Competition Commission (CC) provisionally decided that price controls on the UK’s four largest clearing banks servicing small and medium size enterprises (SMEs) should be lifted. The controls currently require the banks to offer SMEs an account that pays interest on credit balances of 2.5% below base rate or higher, or does not levy standing charges or charges for core money transmission services, or both.

The controls currently apply to Barclays Bank plc, HSBC Bank plc, Lloyds TSB Bank plc and the Royal Bank of Scotland Group plc.

This should not however be seen as giving the banks back complete freedom over pricing. The CC has provisionally decided to keep in place certain behavioural undertakings aimed at easing the process of switching account provider and recommends that the Office of Fair Trading (OFT) take action to reinforce the awareness and impact of the behavioural undertakings. The CC’s recommendations are that the OFT should:

  • actively monitor all SME banks’ behaviour following the lifting of the price controls, and raise awareness of any worsening of their offers;
  • work with the banks to ensure that SMEs become more aware of the banks’ obligations to make it quick and easy for them to switch accounts; and
  • explore with the British Bankers’ Association the scope for including these issues in the voluntary Banking Code at its next review.

The next step is for interested parties to comment on the CC’s provisional decision. These comments should reach the CC by 28 September 2007. This is the banking sector’s chance to have its say and engage with the OFT/CC in relation to SME banking, particularly in the light of the proposed awareness raising role of the OFT and proposals regarding the Banking Code review.

All of these controls stem from the CC’s 2002 investigation into banking services to SMEs. This was at least in part prompted by concerns about the level of charges imposed on SMEs for banking services. In 2006/7 the OFT carried out a review of all of the undertakings imposed following the CC’s SME report. It made recommendations to the CC, which itself also reviewed the undertakings, culminating in the 23 August provisional decision.

Please click here for the CC’s notice giving details of its provisional decision regarding the undertakings. The CC’s press release on this topic is available here.