“it appears that redirection may deliver many of the benefits of account number portability at lower cost.”
As I have mentioned, the Government strongly support the ICB recommendation on switching and are holding the industry to account to deliver by the September 2013 deadline. Once the new switching service is operational, the Government will assess whether the service has delivered the expected consumer benefits. If not, further measures, including full account portability, will be considered. Given where we are and the recommendations of the ICB, we believe that it is right to proceed with the plans currently in place.
A number of hon. Members raised the issue of transparency. They want to ensure that customers can see exactly what services are provided and the costs that apply. The Government are clear that banking needs to become more transparent, and that is a perfectly fair point. A number of transparency measures are already being implemented in retail banking, including making charges clearer on customers’ monthly statements and providing an annual statement of charges for each customer. The annual statement will allow customers to see how much their account has cost them and it will provide an opportunity for them to consider whether they are getting good value.
That is a welcome start, but more must be done. As set out in the recent White Paper on banking reform, the Government see increased transparency and financial capability as an integral part of a competitive banking sector. The Office of Fair Trading has announced that it will conduct a review of the personal current account market in 2012, assessing levels of transparency in the market and the impact of the measures that have already been taken to improve transparency, as well as taking forward the recommendations of the Independent Commission on Banking on including interest forgone on bank statements and annual summaries.
Mr Thomas: I thank the Minister for giving way again on the issue of transparency. Why have the Government not included in their proposals for banking reform the idea that there should be a requirement on banks to disclose what they lend and where they lend on a postcode basis, to help us understand where the Thamesmeads, the north Harrows and the other unbanked areas in the UK are, so that we can better direct resources and new challenger banks to those areas?
Mr Gauke:
Indeed, that issue was raised by the hon. Members for Islwyn and for Erith and Thamesmead during the debate. I say to the hon. Gentleman that data releases by postcode by each bank for all customers would be a very considerable undertaking for banks. It would also create a significant regulatory burden, and let us not forget that considerable regulatory burdens can prove to be a barrier to entry. At a time when we
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want to ensure that there is more competition, we must bear that in mind. It is also worth pointing out that there are legitimate differences between different areas for lending figures, including differences in credit risk. One would not expect there to be similar lending figures across the country. I caution against a reaction that would mean the imposition of a further regulatory burden.
Let me return to the issue of transparency. The Financial Conduct Authority will take a proactive approach to consumer protection. It will focus on the transparency of information that is available to consumers of financial services. The FCA will carry out a fundamental review of how transparency will be embedded in the new regime, both by the regulator and by firms, and it will publish a discussion paper in the first quarter of 2013. The review will consider what further measures could be introduced to improve the quantity and quality of the information that customers receive, enabling them to make informed choices and exert competitive pressure on firms.
Let me pick up on some other points that were made during the debate. The hon. Member for Erith and Thamesmead made a point about the payments clearing system; she was concerned that the big banks controlled that system. My response is that the Bank of England already has a large role in the UK payments system, given that the stability of that system is of paramount importance, and shortly the Government will issue a consultation on the future strategy-setting of the payments industry to ensure that consumers and smaller banks have a louder voice. I hope that all Members support that process.
The issue of access to banking services was raised in the debate, including by the hon. Member for Harrow West (Mr Thomas) in his recent intervention. The Government are committed to improving access to financial services and in particular to bank accounts, which was another point made earlier in the debate. It has been amply demonstrated that having a bank account is an essential aspect of modern life for any individual. Being able to access counter services at a branch and interact face to face with staff is very much valued by many individuals and businesses. However, the issue of where particular branches are located and maintained is fundamentally a commercial decision and one for the financial institution in question, rather than the Government, to make. Therefore, the Government do not intervene in such decisions. All banking service providers will need to balance customer interests, market competition and other commercial factors when they consider their strategy. Nevertheless, banks must treat their customers fairly.
I will say a word or two about the FCA. To ensure that consumers are adequately protected in accessing financial services, the Government are reforming the regulation of financial services. Part of that process includes creating a new dedicated conduct of business regulator—the FCA. Securing effective competition in the market for financial services is a key mechanism for securing better outcomes for consumers, and the FCA’s new competition mandate will be central to achieving that. The FCA will have an operational objective to promote effective competition in the interests of consumers,
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and it will also be under a competition duty, driving it to look for competition-led solutions to conduct issues more generally and in pursuit of its “consumer protection” and “integrity” operational objectives.
The FCA will have the mandate to use its powers to tackle competition problems more swiftly and effectively than the Financial Services Authority did previously, for example by promoting switching, removing barriers to entry or addressing asymmetries of information. A more proactive approach will lead to better consumer outcomes as problems will be tackled sooner, before they give rise to significant detriment. For instance, the FCA will take a keener interest in how products are designed and distributed in the first place, and it will have a new power to ban or impose restrictions on products that it considers could cause significant detriment.
Greater transparency and disclosure will also be at the heart of the FCA’s new approach. For example, it will have new powers to disclose the fact that a warning notice in respect of disciplinary action has been issued, and to publicise details of actions taken against misleading financial promotions.
In conclusion, banking competition is essential for consumers, businesses and the economy to prosper. The Government are undertaking a number of significant reforms to enhance competition and we continue to work hard to consider how best to improve competition in banking while maintaining the UK’s position as a global financial centre. In that context, I thank hon. Members for their well-considered comments and suggestions today. A number of excellent points have been made today by hon. Members and they all contribute to the valuable debate about banking competition.
5.27 pm
Andrea Leadsom: Thank you, Mr Davies, for calling me to speak.
First, I thank my hon. Friend the Minister for providing what I thought was an extremely helpful round-up of what the Government are doing. As I said in my own remarks, it is certainly true that this Government have taken huge steps to put right a lot of the problems that have given rise to the financial crisis and the later problems of fraud and the issue of banks being “too big to fail”. I am grateful to him and the rest of the Government for that.
I also pay particular tribute to my hon. Friend the Member for Wyre Forest (Mark Garnier), because he and I have been a kind of two-man whirlwind in trying to get to the bottom—acting on our own and in private—of the issues for those organisations that would like to set up a bank and indeed for those small banks that do not reach a critical mass. We have found evidence that there are some significant barriers to entry, both regulatory barriers and barriers erected by the big banks that are trying to shut them out. I hope that the Minister recognises that we have tried to share that evidence with him today for his information.
It has been an extremely helpful debate today. I am very grateful to all hon. Members who have contributed to it. Some interesting suggestions have been made, and I would just like to summarise what I think are the “highlights” of the debate. First, of course we need many more new entrants to the financial services sector. Secondly, diversity of providers is absolutely key; we
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need not only “one-stop shop” banks but all sorts of other providers. Thirdly, we want to see far greater transparency, so that customers know what they are getting. Fourthly, access to banks and to branches is vital. Finally, the barriers to entry put up by the big banks need to be broken down, and issues such as the ownership of VocaLink and the Payments Council need to be examined.
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I will end with the words of Jayne-Anne Gadhia, of Virgin Money, who said that banking needs less head and “more heart”.