Small Business Banking - Price controls lifted on SME Banks

This week, the Competition Commission published its provisional decision to lift the temporary price controls imposed in 2003 on the UK’s four largest banks servicing small businesses.

The price controls were put in place following an investigation by the CC into the SME banking market. They require the four banks to make available to SMEs an account that offers an interest rate of at least 2.5 percentage points below base or free money transmission services, or both. They were intended as a temporary measure until the behavioural undertakings, which were designed to make the market more competitive, had time to take effect. The behavioural undertakings apply to nine banks including the four bound by the transitional undertakings.

The requirement on the banks to publicise changes in charges will, however, be retained. The behavioural undertakings designed to make the market more competitive by making switching easier and prices more transparent and by prohibiting the bundling of different products and services will remain in place.

In addition, the Commission will be recommending to the Office of Fair Trading (OFT) that it should reinforce the awareness and the impact of the behavioural undertakings. In particular it will recommend 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 imposing the obligations on the banks under the Banking Code at its next review.