Why are banks being investigated over SME lending?


In early November, the governmental Competition and Markets Authority (CMA) confirmed it would investigate both the provision of personal current accounts and, of greater significance to us, SME banking services. Set to last 18 months in full, the study is hoping to identify whether or not unfair practices are leading to SMEs getting a raw deal and the banks themselves being the main beneficiaries.

What are the specifics?

The CMA has outlined that it is looking into such factors as whether or not customers are easily able to switch from bank to bank to secure the best deal for themselves, and whether some banks are gaining too much power within the market. A further concern is the entry and expansion restrictions that some SMEs may be facing.

It follows a pair of reports during the summer in which the CMA identified a number of barriers being placed that prevented new entrants from gaining a fair market share when going into deals with some of the UK’s largest banks.

What’s the process now?

The CMA has spent the last month on the lookout for research agencies able to quiz customers of SME banking for feedback and anecdotes of their experience. The invitation for them closed on December 3, so the CMA is likely whittling down the applicants before commencing site visits in early 2015.

A provisional report is due for publication next September, and early stage decisions will be made at the start of 2016. Finally, in April 2016, the report is to be published in full.

What could be the outcome?

Some banks attempted to dissuade the CMA from launching the investigation by suggesting such measures as easy-to-use comparison websites, but the British Bankers Association has stated that it will give its full cooperation to the inquiry now that it has been confirmed.

The CMA is a powerful body, and is able to make radical decisions if it deems it necessary. These can extend as far as breaking up banks in order to create more competition.

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