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Financial Services: Competition

Volume 765: debated on Thursday 22 October 2015


Asked by

To ask Her Majesty’s Government, in the light of the Competition and Markets Authority’s investigation into personal current accounts and banking services for small and medium-sized enterprises, whether they intend to support further the financial technology sector in providing greater competition across financial services.

My Lords, the Government are committed to improving competition in financial services and welcome technological innovation that incentivises firms to provide the best products and services to customers. The UK is already a global hub for financial technology—fin-tech—and our ambition is to make the UK the global hub for fin-tech. We have already taken a number of steps to achieve this and we continue to look at ways to support this exciting sector.

My Lords, alternative finance is, indeed, a great British success story. We have a real opportunity to close the finance gap which has held back small and medium-sized enterprises for decades. I congratulate the Government on what they have done so far in this area, and ask my noble friend what more they will do to ensure that small and medium-sized enterprises are aware of the full breadth of finance options available to them.

My Lords, to support the development of diverse finance markets for smaller businesses, the Government have established the British Business Bank, which brings together new and existing schemes into a single, commercially minded institution. The Chancellor also announced the launch of the Business Banking Insight survey. This will help the UK’s SMEs to understand their options, make decisions about who they should bank with and plan how they will finance their growth. Lastly, the Federation of Small Businesses survey found that more SMEs reported that credit was affordable and available than at any time since 2012.

My Lords, the phenomenal and brilliant success of peer-to-peer lending is a vindication of this House, which in 2012 effectively strong-armed the Treasury into recognising that the industry both wanted and needed regulation in order to grow. Now, with UK-based peer-to-peers expanding across the European Union and new peer-to-peers springing up there, will the Government commit to work with Governments of other EU countries and the Commission to avoid what is turning into regulatory chaos, so that this is a single market from the beginning?

My Lords, the Government are certainly anxious to have a proper regulatory system and will of course do whatever they can to make sure that we do not have regulatory chaos.

But, my Lords, the Government’s efforts to improve competition in the banking industry are lamentable. Two years ago, they introduced measures to encourage banks to offer more information to account customers, and the result is that only 3% of customers change their accounts in any year. It is quite clear that something more significant needs to be done and the Government need to take action to improve competition against a background where 77% of current accounts and 85% of SMEs are with the big four banks. I remind the House that two of those banks were bailed out only a few years ago.

My Lords, the switching service which the Government introduced has enabled 2.1 million customers to switch. We agree that that should be increased, but the noble Lord omitted to mention that the CMA report out this morning stated that the switching service is functioning reasonably well. Of course, we understand that switching accounts can only improve competition. We fully support the CMA’s provisional report and await its final report next spring, when we hope that it will have some sensible and useful recommendations.

My Lords, will the Minister ask the department to investigate the current barriers placed in the way of new charities trying to open bank accounts with the major banks? They face difficulties and refusals based primarily on money-laundering directives. This is inhibiting the charitable sector, particularly the small charities.

I agree that anything that inhibits charities’ proper functioning is to be deprecated. On the other hand, we have to ensure that money-laundering regulations are applied; they are very important. Of course, money laundering hurts the beneficiaries of charities as well and must be taken seriously, but we are trying to make a more proportionate regulatory response, and the FCA and the PRA are working on that at the moment.