Bonking overrides banking as investigation report published

Take a guess which story captured more attention in the City on Tuesday – the results of the latest investigation into the banking sector or the splash in the Sun newspaper?

Under the headline "Lloyds Bonk" the tabloid newspaper exclusively revealed Antonio Horta-Osorio's trysts with a secret mistress on a company trip to Singapore.

The married Lloyds Banking Group chief executive reportedly ran up a bill of almost £4,000 at the luxury Mandarin Oriental, the Sun said, although it was unclear whether the tab was picked up by him or by the bailed-out bank.

As the best headline the Competition and Markets Authority could muster for its probe into the banking industry was "CMA paves the way for Open Banking revolution" – and no pictures – it wasn't much of a contest.

The two-year investigation may have cost a reported £5 million but the content was as unoriginal as its headline, with promises of reduced costs for bank customers and a pledge to break the stranglehold of the Big Four banks in the current account market.

If all that sounds familiar, it’s because we’ve been here before, more than once. In fact, there have been 11 investigations into the banking sector over the past 20 years or so, with precious little to show for it.

Bank charges

The Big Four – Lloyds Banking Group,

Barclays

,

HSBC

and

Royal Bank of Scotland

– between them still control more than three quarters of personal current accounts and 85 per cent of small business accounts.

British banks rake in £1.2 billion a year from unauthorised overdraft charges, with users of unarranged overdrafts accounting for around one in four current accounts. In future, these customers must be sent alerts when they are going into the red and given a grace period to put their account in order. The banks will also set a monthly cap on charges.

Other measures proposed by the CMA to reform the market include making it easier for customers to switch to a cheaper bank – at present, just 3 per cent of personal customers switch banks in any one year, something that could save those habitually going overdrawn as much as £180 a year.

The measures the CMA shied away from are far more interesting than those it proposed, however. For example, it could have demanded a break-up of the big banks, something that would certainly achieve the regulators’ oft-stated aim of ending their dominance of the market.

It could have put a formal price cap on fees for un-arranged overdrafts rather than allowing the banks to set their own monthly maximum charges. And it could have put an end to “free-if-in-credit” accounts. These provide “free” banking if a customer stays in the black but critics say it’s impossible for customers to calculate the hidden costs of their accounts.

The competition authority is also putting its faith in technology to open up the market, touting a digital app that will allow customers to compare charges between banks, enabling them to switch to cheaper account providers if they are being overcharged.

Such an app does not yet exist, however, and developing one that can easily compare charges across rival banking groups and third-party providers while also protecting the security of customers’ information could prove problematic.

MP Andrew Tyrie, head of the Treasury Committee, accused the CMA of relying on new technology to do the "heavy lifting" on competition, saying many customers lacked the tools or skills and would anyway be wary of the data-sharing required for such an app to be effective.

‘Missed opportunity

’ While the CMA insisted its reforms would “shake-up retail banking for years to come,” consumer groups and challenger banks were scathing in their response.

Mark Mullen of Atom Bank, one of the challenger banks attempting to gain a foothold in the market, said allowing the big players to police themselves was "like trusting a pyromaniac with the security for a fireworks party."

Accusing the CMA of "playing right into the hands" of the big banks, TSB chief executive Paul Pester said the regulator had missed "a golden opportunity."

He added: “Banking must be the only industry that doesn’t tell its customers how much they are paying for its services.”

Consumer watchdog Which? was also unhappy, saying the measures did not go far enough and that the big banks would still be able to charge “exorbitant” fees for unauthorised overdrafts.

How long before we’ll be embarking on yet another competition investigation into the banking sector?

- (Fiona Walsh is business editor of theguardian.com)