2.4 Methods of Increasing Competition

Question 1

What did the Independent Commission on Banking (ICB) look at?

Answer 1

Ways in which competition might be improved

Question 2

What are the methods of the ICB on improving competition grouped under?

Answer 2

• Encouraging challenger banks and reducing barriers to entry
• Consumer choice and current accounts
• Regulation

Question 3

What are the ways in which the ICB believed it could ‘secure the emergence of a strong, new challenger bank’?

Answer 3

• Lenient treatment for challenger banks from financial regulators in terms of capital and liquidity
• Encourage challenger banks to buy the branches being sold by LBG and RBS
• Preventing larger banks from becoming even larger by putting a cap on their market share
• Encouraging the entry of foreign banks

Question 4

Why is it danger for challenger banks to receive lenient treatment from financial regulators?

Answer 4

If regulators were too lenient, the banks may become insolvent

Question 5

How could the CMA help to prevent large banks becoming larger?

Answer 5

Preventing mergers and takeovers

Question 6

What does the European Commission’s competition department seek to do?

Answer 6

Enhance competition in the banking, insurance and capital sectors by means of policy.

Question 7

What are the three barriers to entry and expansion named by the Commission?

Answer 7

• Prudential capital requirements
• Access to cash-handling facilities
• Access to the payment systems

Question 8

Historically, why do consumers in the UK not switch account often?

Answer 8

• Lack of transparency

- Perception that it is risky and difficult

Question 9

How did the Payments Council respond to the recommendations of the Commission?

Answer 9

Setting up the Current Account Switch Service

Question 10

What does the CASS aim to do?

Answer 10

Make switching current accounts ‘simpler, easier and hassle-free’.

Question 11

Is the CASS free?

Answer 11

Yes

Question 12

How much influence does the customer have over which day to switch accounts on?

Answer 12

It is a day that suits them and which they agree with the new bank

Question 13

How long does account switching take under the CASS and how long did it used to take?

Answer 13

Seven working days, it used to be 18-30

Question 14

What does the Current Account Switch Guarantee outline?

Answer 14

What the consumer is entitled to if anything goes wrong during the switch

Question 15

What does the 13-month redirection service after switching accounts do?

Answer 15

Ensures any payments made to or requested from the old account are automatically redirected to the new one

Question 16

Which bank is the switching process managed by?

Answer 16

The new bank - there is no need for the customer to be in touch with the old bank

Question 17

What does the FCA article ‘Switching an account’ help to do?

Answer 17

Helps people to understand their rights when switching accounts

Question 18

How does the FCA believe it benefits consumers?

Answer 18

By offering ‘better value, genuine choice, quality products and services and useful innovation in financial service’

Question 19

Is the FCA more concerned with competition delivering good service to consumers or individual firms being able to compete and survive?

Answer 19

Competition delivering good service to consumers

Question 20

What does the mobilisation phase for new firms introduced by the FCA allowed?

Answer 20

A potential competitor to receive authorisation to trade at an earlier stage of its development

Question 21

Why is the mobilisation phase beneficial for a new bank?

Answer 21

It will be less costly if it can apply for authorisation before it has to pay for developing its infrastructure

Question 22

What situations are the FCA most likely to intervene in?

Answer 22

• Competition issues that it believes carry the greatest potential harm to consumers
• Issues which it believes it can be most successful in preventing and redressing harm.

Question 23

What is the CMA mainly responsible for?

Answer 23

Monitoring and regulating competition in the financial services marketplace

Question 24

What is the aim of the CMA?

Answer 24

To ‘consistently be one of the leading competition and consumer agencies in the world’

Question 25

What are the responsibilities of the CMA?

Answer 25

• Investigating mergers that could restrict compeittion
• Conducting market studies where there could be competition and consumer problems
• Criminal proceedings against those who commit competition offences