This CAB super complaint goes to the heart of the retail banking model that has developed over the last 30 years or so. It therefore deserves to be viewed in a broader context.
It will potentially have a profound impact on the reception given to the FCA’s forthcoming market study on the subject, and may even question the relationship between the FCA’s competition agenda and its principle of treating customer fairly. The potential contradictions may be particularly acute for vulnerable consumers.
When I was involved in supervising banks in the mid-1990s, before the FSA was dreamt of, two of retail banks’ main strategies revolved around: how to reduce their cost to income; and how to increase their non-interest income. Large elements of this approach remain in place today.
Because non-interest income tends to take the form of fees and commissions from cross-selling various insurance and investment products into your customer base, there is a strong incentive to attract new depositors with advantageous rates not available to existing customers. This strategy has clear strengths, but unquestionably some customers miss out, typically including the most vulnerable.
At the time, before the FSA was formed in 1998, the Bank of England’s sole regulatory objective was to protect depositors’ interests, so the increased financial strength these strategies promised was welcome. Conduct regulation was done by a range of other regulators (SFA, IMRO etc.).
The FSA largely left the issues behind this model alone, witness its decision to keep its conduct powers in respect of banking switched off until 2010. So too has the FCA until now.
However, the core philosophy behind this strategy is what the CAB complaint is challenging. If it is successful, the resulting ruling could challenge both the financial viability of ringfenced banks that and, as a consequence, the delicate balance between conduct and prudential regulation on which our new system of twin peaks regulation depends.
This is not to make a judgement about the rights and wrongs of the CMA’s super-complaint. But it's important to recognise that it is not a standalone question. There is a good deal of complexity and connectedness here.
Citizens Advice today submitted a super-complaint to the Competition and Markets Authority (CMA) calling on it to identify remedies and recommendations to put an end to the penalty paid by loyal and disengaged consumers. The super-complaint covers several markets, including insurance, cash savings and mortgages.