Legal Updates

Commercial Law – EU - Banking – Removal of Competition Barriers

According to the British Bankers’ Association (“BBA”), the European Commission's pans to open up the European Union's financial services market to further competition is likely to benefit the banking industry in the UK. Neelie Kroes, the EU competition commissioner, published her final report on the European retail banking sector in January 2007 with the warning that the Commission will make full use of its powers to tackle widespread competition barriers.

This could mean a greater British banking presence on the continent as the removal of competition barriers would allow UK banks to expand across Europe and into other member states. British banks are already making concerted efforts to break into Europe's retail banking market. It is estimated that retail banking on the continent is worth between 250 and 275 billion Euros. The EU competition commissioner’s report stated:

"The provision of cross-border services is not developing as fast as it could. Only 9% of banks surveyed attempted cross-border entry, with the UK banks being the most active".

Many of the Commission's concerns have already been addressed in the UK, according to the BBA. There is no charge for closing a current account, and no compulsory bundling of products – both issues feature prominently in the report. The BBA also said that the UK financial services industry was "vibrant and competitive" and "offers some of the cheapest services in the EU and provides clear information on fees and charges”.

The chief executive designate of the BBA, Angela Knight, says that UK bank customers are able to recognise a good deal when they see it.

"People stay with their banks, often building relationships over many years, because UK banks provide good services, first rate products and the best overall deal of any European country. Unlike elsewhere, customers in the UK are protected by a Banking Code that covers such aspects as switching, marketing and complaints… The key to a competitive market is whether customers can easily shop around for the best deal and change from bank to bank. The answer in the UK is a resounding 'yes'. The UK banking industry is vibrant and competitive and this is good for customers, for banks and the whole UK economy".

Knight also points out that a recent report produced by Oxera Consulting in December 2006 called The Price of Banking: International Comparisons Report demonstrates that UK customers get some of the cheapest services and products available. According to her, the report highlights that the typical UK customer using a range of banking services receives some of the cheapest services in the eleven countries studied (Including the US, Italy, Sweden, France, Ireland, Germany, Finland, and the Netherlands).

For example, says Knight, the report found that banks in the UK provide clear information about fees and charges and that they offer the best range of retail banking services.

"We believe that cross-border competition is best improved by removing obstacles to international mergers and acquisitions and joint ventures rather than making every country throw out its individual arrangements in favour of a one-size-fits-all system".

The European Commission inquiry, launched in June 2005, stopped short of proposing any solutions but Kroes said the Commission would work closely with national competition authorities to tackle any serious abuses. According to the Commission, the outcome of the inquiry should boost competition in the run-up to the creation of the Single Euro Payment Area.

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© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.


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