CMA issues two banks directions on SME banking

Since a Competition Commission investigation concluded in 2002, 8 major banks in the UK have been prohibited by legally-binding undertakings from requiring small and medium-sized enterprises to open a business current account with them as a condition of obtaining a loan – a practice known as ‘bundling’. This safeguards customer choice and helps providers to compete effectively in SME banking.

During the course of its recent market study on SME banking, the Office of Fair Trading became aware of concerns that some banks might be breaching these undertakings. As a result of these concerns, the 8 major banks agreed to carry out a detailed audit of their compliance with, and their staff’s awareness of, the undertakings.

Following its investigations, the Competition and Markets Authority (CMA) (which in April 2014 took over the OFT’s competition functions) has now concluded that 2 banks – First Trust Bank in Northern Ireland and HSBC – have breached the undertakings by indicating to some SMEs that opening an account with them was a condition for obtaining a business loan.

As a result, the CMA has issued detailed directions to First Trust Bank and HSBC to ensure that these companies and their staff comply with the undertakings. The audits also revealed that at 2 other banks there was relatively low awareness among relevant staff of this prohibition under the undertakings. All 8 banks will be required to carry out another audit and report to the CMA again by July 2015.

Alex Chisholm, CMA Chief Executive, said:

"Breach of these undertakings is a serious matter and we have directed First Trust Bank and HSBC on the actions they must take to immediately correct the situation – so that it is clear to both their staff and their SME customers that obtaining a business loan is not dependent upon opening an account.

"Although all 8 banks have recognised the importance of complying with the undertakings and are taking steps to address this, when breaches occur we need to ensure that there will be full compliance. In addition, all 8 banks will need to show that they have the correct systems in place to ensure that ‘bundling’ will not occur in the future, and we are requiring a further audit next year to confirm this.

"In the meantime, we would encourage SME customers to get in touch with us with any concerns they may have about the compliance of any of the 8 banks with these obligations."