FSB supports changes to UK banking sector

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FSB supports changes to UK banking sector (image credit: iStock/allanswart)

The Federation of Small Businesses (FSB) has issued a strong voice of support for changes being implemented by the UK banking sector in the wake of the latest recommendations and a new report from the Competition and Markets Authority (CMA).

Published this week (May 17th), the report has highlighted the considerable impact that a shift in policy could provide in terms of improving access to funding for the nation's small businesses, as well as encouraging more firms to seek out the best deals and accounts for them.

Research carried out by the CMA as part of its examination into the UK banking sector revealed that 60 per cent of personal account holders have stayed with the same banking provider for at least ten years. However, within the small to medium-sized enterprise segment, this figure rises to 90 per cent.

As a result, the CMA has argued that competition within the banking sector has become increasingly weak in recent years and therefore action now needs to be taken to address this problem.

Measures that were therefore considered included the potential breaking up of several of the UK's largest banks to create more smaller entities and increase levels of competition. However, it was deemed that the issue is not a lack of players in the market at present, but instead there is a lack of transparency and confusion surrounding the most and least appropriate products on the market.

As a result, many customers are not aware that they are on deals that are not suitable to meet their needs and there is a lack of general understanding in terms of where to find the best information to compare products and services.

It has therefore been decided that one of the major changes to take place in the coming months will be an update to the current account switch service (CASS) to make switching banks more straightforward. Meanwhile, lenders will be encouraged to regularly correspond with their customers and to highlight to them areas where there may be more viable product options elsewhere in the market.

In addition, the CMA has recommended the introduction of a new maximum fee cap for all customers to address concerns over unscrupulous or excessive charging.

FSB national chairman Mike Cherry commented: "Small business owners are still not confident that switching banking products or services will be a risk-free, seamless process, and as a result, many choose not to switch. A new awareness campaign and measures to make switching transparent are promising steps."

He added that the current system is not working well for small businesses up and down the country, but with efforts from the CMA, banks and the public in the months to come, this situation could change.

Mr Cherry concluded: "The CMA has tackled some of the more opaque practices of the high street banks.

"With £1.2 billion charged each year for unauthorised overdrafts, proposals for a maximum fee cap and to introduce prompts and alerts for overdrafts at the end of free banking periods will combat a particularly poor practice that small firms face. This should encourage small businesses to shop around and switch."