Competition Commission Lifts Controls On SME Banking

The Competition Commission (CC) is set to lift price controls for small and medium-sized enterprises' (SMEs) banking services.

Controls were set in 2003 covering HSBC, Royal Bank of Scotland, Barclays and Lloyds TSB to hold accounts at an interest rate of at least 2.5 per cent below the base rate or charge-free money transmission facilities, or both.

However, the rules were only intended as a temporary move until measures were put in place to make the market more competitive.

CC deputy chairman Christopher Clarke said: "Having reviewed the evidence and advice from the Office of Fair Trading (OFT), we believe that these price controls are no longer appropriate."

He went on to say that since the controls were put in place, HBOS, Abbey, and Alliance & Leicester have competed more strongly for SME customers and improved their market position.

"SMEs have raised their expectations of what banks should provide and are more likely to consider switching if they do not get what they want. They are therefore better placed to constrain the actions of the four banks which were subject to the price controls," Mr Clarke explained.

"Even so, we recognize that these four banks still have 85 per cent of the SME market. They will therefore remain bound to publicise any changes in their charges. Similarly all banks providing SME banking services will have to continue to comply with the undertakings on the ease of switching, transparency of prices and the prohibition on bundling of different products and services."

The provisional decision to lift controls has been welcomed by the OFT, saying it will boost competition to small business banking services.

John Fingleton, chief executive at the OFT, said: "This is an important step in the development of further competition in the business banking sector. It will allow banks greater freedom to innovate and compete for customers, and will be most beneficial for those prepared to consider switching their banking service provider.

"The OFT will continue actively to monitor the market in future, and ensure the banks comply with their undertakings on switching and price transparency. If we find that competition is not working well for SMEs, we will consider further action."