Alasdair Smith, CMA inquiry chair

Alasdair Smith, CMA inquiry chair

The UK’s Competition and Markets Authority (CMA) is ramping up its efforts for open banking within the nation’s retail banking scene.

As reported in February, the CMA published its 766-page final report on the retail banking market and its open banking goals. At that time, it said it will offer overdraft users the opportunity to save an average of £180 a year, while other current account holders can save an average of £92.

In his latest speech, Alasdair Smith, CMA inquiry chair, outlined why it “rejected populist prescriptions such as breaking up the big banks”; explained the implications of its open banking programme; and discussed its relationship with the Financial Conduct Authority (FCA).

Smith says the CMA’s final report got a “rather negative initial reception” – maybe because it was so damn long – but mainly because public perception is that the “disappointing performance of the UK economy over the past nine years is a consequence of the financial crisis of 2008 which in turn was caused by poor behaviour by and poor regulation of the banking system”. He adds that this “appetite for retribution” has not played a part in the CMA’s ambitions and vision.

He trots out the usual line that open APIs will help SMEs and “put customers in charge of access to their banking data, will encourage the development of new services and new providers”.

FIIC as these

According to Smith, two groups of personal current account customers make “disproportionate contributions” to the revenue of retail banks: those who have high average current account balances, and those who make frequent use of overdrafts, especially unarranged overdrafts.

In his view, it’s possible that the free if in credit (FIIC) personal current account could disappear, but the CMA says the survival of the product should be decided by the market not by regulators.

Calling it “one of our more controversial remedies”, the monthly maximum charge (MMC) on unarranged overdraft charges is a transparency measure. But the level of the MMC is not regulated.

Smith says “some commentators think we should have capped the MMC at a level which would help the most financially vulnerable customers”; but he believes this is “premature” due to the added effects of open banking and overdraft alerts.

All yours

Smith warns of the “risk of regulatory overlap” with the FCA, but notes that most of its remedies are being implemented by the CMA using its legal powers.

However, the CMA’s current account switching will be tested and implemented by the FCA using its legal powers, while its overdraft remedies are being implemented by the CMA, but with further testing and development to be undertaken by the FCA.

The aforementioned MMC is a “challenging issue” which has been passed to the FCA.