The OFT announces market study into the SME banking market

The market study will be UK wide and the OFT is currently seeking views on its proposed scope, in particular on:

• competition in the supply of banking services to SMEs – whether SMEs have access to services that meet their needs and represent good value;
• competition in the supply of lending or other finance to SMEs – such as whether any lack of competition between banks is holding back SMS lending or other finance to SMEs; and
• whether there are types of SME (for example, start-ups or small financial firms) that face particular difficulties, and if so why.

The SME market has been monitored closely since the Cruikshank Report in 2000. The OFT announcement was made the same day as the Parliamentary Commission on Banking Standards issued its final report.

With the continual cries for more lending to SMEs, the chances of OFT giving the SME banking market a clean bill of health seem slim.

The OFT is likely to focus on similar issues to the ones it looked at during the market study on personal current accounts and the recent follow up review, namely: transparency, switching and complexity of charges as well as the strength of the Big Four in the SME market. These are issues which the Competition Commission considered in its last review of the market in 2002.

The OFT’s market study is likely to last about 6 months. If issues are identified the OFT has a number of options available to it:

• enforcement action;
• a full market investigation reference to the Competition Commission;
• recommendations for changes in laws and regulations;
• recommendations to other regulators, self-regulatory bodies and others to consider changes to their rules and campaigns to promote consumer education and awareness.