2.4 Methods of Increasing Competition Flashcards
What did the Independent Commission on Banking (ICB) look at?
Ways in which competition might be improved
What are the methods of the ICB on improving competition grouped under?
- Encouraging challenger banks and reducing barriers to entry
- Consumer choice and current accounts
- Regulation
What are the ways in which the ICB believed it could ‘secure the emergence of a strong, new challenger bank’?
- 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
Why is it danger for challenger banks to receive lenient treatment from financial regulators?
If regulators were too lenient, the banks may become insolvent
How could the CMA help to prevent large banks becoming larger?
Preventing mergers and takeovers
What does the European Commission’s competition department seek to do?
Enhance competition in the banking, insurance and capital sectors by means of policy.
What are the three barriers to entry and expansion named by the Commission?
- Prudential capital requirements
- Access to cash-handling facilities
- Access to the payment systems
Historically, why do consumers in the UK not switch account often?
- Lack of transparency
- Perception that it is risky and difficult
How did the Payments Council respond to the recommendations of the Commission?
Setting up the Current Account Switch Service
What does the CASS aim to do?
Make switching current accounts ‘simpler, easier and hassle-free’.
Is the CASS free?
Yes
How much influence does the customer have over which day to switch accounts on?
It is a day that suits them and which they agree with the new bank
How long does account switching take under the CASS and how long did it used to take?
Seven working days, it used to be 18-30
What does the Current Account Switch Guarantee outline?
What the consumer is entitled to if anything goes wrong during the switch
What does the 13-month redirection service after switching accounts do?
Ensures any payments made to or requested from the old account are automatically redirected to the new one
Which bank is the switching process managed by?
The new bank - there is no need for the customer to be in touch with the old bank
What does the FCA article ‘Switching an account’ help to do?
Helps people to understand their rights when switching accounts
How does the FCA believe it benefits consumers?
By offering ‘better value, genuine choice, quality products and services and useful innovation in financial service’
Is the FCA more concerned with competition delivering good service to consumers or individual firms being able to compete and survive?
Competition delivering good service to consumers
What does the mobilisation phase for new firms introduced by the FCA allowed?
A potential competitor to receive authorisation to trade at an earlier stage of its development
Why is the mobilisation phase beneficial for a new bank?
It will be less costly if it can apply for authorisation before it has to pay for developing its infrastructure
What situations are the FCA most likely to intervene in?
- 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.
What is the CMA mainly responsible for?
Monitoring and regulating competition in the financial services marketplace
What is the aim of the CMA?
To ‘consistently be one of the leading competition and consumer agencies in the world’
What are the responsibilities of the CMA?
- 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
