UK regulator reviews business models at retail banks

LONDON, June 29 Britain’s financial regulator
has begun a root-and-branch study of how the country’s high
street banks make money and will set out its initial findings in
the first half of next year.

Andrew Bailey, chief executive of the Financial Conduct
Authority (FCA), said the study was an ambitious project that
applied lessons from the 2007-09 financial crisis when Northern
Rock collapsed because of an unsustainable business model.

The study comes at a time the government is trying to boost
competition in a sector dominated by the “Big Four”, HSBC
, Lloyds, Royal Bank of Scotland and

Bailey said 16 new banks had been approved over the last
five years and 38 were considering seeking authorisation.

“My hope is that we can lay out a body of evidence from
which conclusions can start to be drawn,” Bailey told a British
Bankers’ Association (BBA) conference on Thursday.

“But, let me manage expectations. We expect to be working
hard for the rest of this year and into the first two quarters
of next year to get the evidence laid out.”

The study will start off focusing on links between different
products and services and their relative profitability in an
environment were fewer customers are visiting bank branches,
preferring to access accounts over the phone.

“It should enable us to assess better the impact of changes
– for instance in technology – on retail banking business
models,” Bailey said.

BBA Chief Executive Anthony Browne told the conference that
retail banking was changing more than ever before, with apps now
the most popular way to access accounts.

“There is a consumer-led revolution underway in the way we
access and manage our money,” Browne said.

Bailey said the FCA will publish its findings over the
summer from a review of so-called high-cost credit including
overdrafts after lawmakers criticised banks for charging hefty
fees for people who get overdrawn.

“We will then be able to decide if we need to intervene
further,” Bailey said.

The outcome of a third piece of work will be published by
the regulator soon – a review of how banks assess customers’
understanding of products and services.

There have also been calls for banks to end free banking for
those in credit as lawmakers say it means other services, such
as overdrafts, are more expensive than they should be and hit
the less well off hardest.

“So, as they say, let me be clear. I do not advocate ending
free-if-in-credit banking. Why? Because there is no such thing
to start with, so it cannot be abolished as such,” Bailey said.

He said free-if-in-credit just meant that some customers pay
more or less than others depending on what products they use.
(Editing by David Clarke)