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March 14, 2012 5:55 pm
The new Financial Conduct Authority should use its powers to remove opaque banking charges and make it cheaper for new lenders to enter the market, a panel that represents the interests of retail customers has urged.
In a paper to be published on Thursday, the Financial Services Authority’s consumer panel warns of “stagnant and ineffective” competition in the current account market that needs addressing urgently.
It said action taken by the industry, including a new faster switching service and efforts to increase transparency around costs, had not gone far enough and pressed the new consumer focused regulator to do more.
Mike Dailly, a member of the panel, said the creation of the Financial Conduct Authority was a “once in a generation opportunity to reshape banking in the UK”.
He called on the FCA to force banks to disclose the true cost of banking services, including the value of foregone interest on current accounts, and make it easier for customers to compare these costs.
The consumer panel wants the regulator to tackle the “unfair and unsustainable” current account model, through which more financially vulnerable customers who incur greater overdraft charges subsidise free accounts for others.
It is also pressing for an overhaul of incentive structures that reward one-off sales and wants it made cheaper and easier for new banks to set up on the high street.
“The panel believes that failures in the retail banking sector are directly leading to consumer detriment in the free if-in-credit personal current account market,” it said. “Once a revolutionary concept, the dominance of the free-if-in-credit model has led to market stagnation and ineffective competition.”
It did not support a total ban on “free” accounts but said the regulator should implement reforms to create a more dynamic market.
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