Banks must meet competition reforms by 2015

The ICB chairman stated that if reforms aimed at improving competition in the banking industry are not met by 2015, it should be referred to the competition commission.

With the release of the ICB’s final report on Monday September 12th the ICB chairman, Sir John Vickers, has stated that if his reforms aimed at improving competition in the banking industry are not met by 2015, the matter should be referred to the competition commission.

Vickers stated that the reforms were necessary because competition in the UK retail market has not been effective, conditions for well informed customer choice are not good and banks have exploited customer and regulatory awareness for their benefit.

One reform is that the Government must work with Lloyds to ensure its plans to sell off branches result in a “strong challenger bank”.  Vickers noted that as things currently stand, the divestiture will not achieve that.

Lloyds received state support at the height of the financial crisis under a deal struck between them, the Government and the European Commission. This came with the prerequisite that the bank must dismantle itself from the TSB brand and its 632 branches by December 2013.

The remaining two reforms that Vickers has said must be in place by 2015 are that a “seamless” system for personal current accounts must be introduced to promote and allow customers switch banks with ease.  Lastly, Vickers said competition must be made central to the new regulatory structure by giving the Financial Conduct Authority a stronger duty to promote effective competition than currently proposed.

Speaking of the ICB report, Vickers said that “We are not at this point recommending that markets for banking services be referred to the competition commission but a referral should be actively considered if any of the three conditions just mentioned is not met by 2015.”

The first public response to the ICB report came from Barclay’s chief executive Bob Diamond who has praised the decision to make ring-fencing plans flexible, saying that the report was “a welcome step towards the greater clarity that banks need to be able to operate with confidence”.

Royal Bank of Scotland and HSBC also welcomed the reports main aspects, including the delayed implementation date of 2019 and the flexible ring-fencing policy.

All three banks said the capital requirements could be achieved.

Chancellor George Osborne said the 2019 date was “sensible” because it matches the deadline for banks to comply with new capital requirements set out in Basel III.  Osborne said the Government will publish a formal response to the report by the end of the year, legislate for the changes it accepts by 2015 and complete implementation by 2019.

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