Cruickshank Report on UK banking results in reference to Competition Commission 2

United Kingdom

Don Cruickshank, appointed by the Chancellor of the Exchequer in November 1998 to commission a review of the level of competition within the UK banking services sector, has today presented his report. Following publication of the report, an immediate reference has been made to the Competition Commission (formerly the Monopolies and Mergers Commission).

The review investigated in depth the following markets: (a) the market for money transmission systems; (b) the market for personal banking services; and (c) the market for banking services to small and medium-sized businesses. The report concluded that in all three markets competition is ineffective. It found profound competition problems in the market for money transmission systems, which needs continuous scrutiny via a licensing system supervised by an independent payments system commission (“PayCom”). The market for personal banking services, on the other hand, shows encouraging signs of new market entry and increased competition, especially in relation to credit cards, mortgages and personal loans, even though customers perceive high barriers to switching current accounts. In relation to the market for banking services to small and medium-sized businesses, the report recommends a further investigation.

The report makes other wide-ranging recommendations for Government policy towards banking markets. These include recommendations to: (a) increase transparency in banking supervision; (b) put in place the right institutional incentives; (c) deliver effective competition scrutiny; and (d) eliminate regulatory distortions.

The report also concludes that the Government should monitor the impact of the Financial Services and Markets Bill, once it becomes law, on competition in financial services and should conduct a formal review after two years.

Following the publication of the report, the Secretary of State for Trade and Industry and the Chancellor of the Exchequer made a joint and immediate referral to the Competition Commission for investigation as to the existence or possible existence of a monopoly situation in relation to the supply of banking services by clearing banks to small and medium-sized enterprises. The Competition Commission will now conduct a full review using the monopoly provisions of the Fair Trading Act 1973. The Competition Commission is expected to present its report within 15 months of today’s reference.

This is an outline of the recommendations in the report, which runs to 344 pages. If you have any questions on this, please do not hesitate to contact Nick Paul on tel. 020 7367 2806 or e-mail. [email protected]