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UK financial watchdog announces retail banking study

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The Financial Conduct Authority (FCA) has launched a major study into how banks make their money, looking at the links between different products and services and their relative profitability.

In a speech at the British Banking Association Retail Banking Conference, Andrew Bailey, FCA chief executive, said: “Banking isn’t free. So, free-if-in-credit means that costs are recovered and charges levied on some products and services more than others. And, this means some customers pay more or less than others depending on what mix of products they use.”

The FCA wants to see how this cross-subsidy affects individual customers, and whether it affects certain customers more than others. Bailey added that the study should also shed light on the impact of technological and other changes on retail banking business models.

He said that the results of the review should be expected at some point in the first half of next year.

Bailey added that the regulator was currently taking action on the recommendations made by the Competition and Markets Authority following their investigation into retail banking.

Bailey also said the regulator would be releasing the results of its study into unauthorised overdrafts over the summer. He said that concerns had been raised that the cost of an unauthorised overdraft may exceed the price cap imposed on payday lending. He added: “We are looking at all high-cost products to build a full picture of how these are used, whether they cause harm and, if so, to which consumers. We will then be able to decide if we need to intervene further.”

In spite of the authorisation of 16 new ‘challenger’ banks over the past five years, the ‘big 4’ still dominate – Lloyds, HSBC, RBS and Barclays. This is a persistent concern for the regulators. The recent study by the Competition and Markets Authority found: “Larger banks do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow. This means that many people are paying more than they should and are not benefiting from new services.”

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