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21 December 2000
REGULATOR TO ENSURE A BETTER DEAL FOR BANK CUSTOMERS
Consultation on a new regulatory framework to ensure banking customers get a better deal from payment systems was announced by Chief Secretary Andrew Smith today.
Consultative proposals published today aim to ensure effective competition, giving consumers real choice and innovative services at a fair price. Responsibility for delivering these benefits will be given to the Office of Fair Trading (OFT), which will make an annual report to the public on compliance with the drive to improve competition.
Welcoming publication, Mr Smith said:
"These proposals are aimed at ensuring that UK payment systems are exposed to the full rigours of competition.
"There will be no hiding place for anyone seeking to take advantage of customers dependent on them to carry out essential daily banking transactions such as drawing cash, cashing cheques, transferring money or using standing orders and direct debits to pay bills.
"Openness, transparency and access are the key to ensuring that cash machine and other payment services give consumers innovative, fair services at a fair price.
"Providers will have to tell customers - including small businesses - upfront exactly how much they are being charged for ATM, cheque and other services."
The Government intention is to ensure that the UK payments system is open to new competition was announced by the Chancellor of the Exchequer in the March 2000 Budget in response to recommendations by Don Cruickshank in his report on UK banking.
Welcoming publication of the details of the Government proposals, Mr Cruickshank said:
"The Government's proposals are an important piece in the jigsaw to deliver competition in banking markets.
"The introduction of new rules and new powers for the OFT is a route I thoroughly support. It should herald a new era of effective competition in payment systems. I believe that these proposals are the basis for delivering real improvements to bank customers and look forward to seeing them in place.
" The consultation asks almost thirty key questions about the objectives and powers it is proposed to give the OFT. Under these proposals banks and others offering payment services will have to :
- tell customers clearly and simply in cash terms what their charges are
- let new competitors into the market on fair, reasonable and non-discriminatory terms
- base interbank charges, which customers usually pay in the end in some form or another, on actual costs, and take account of offering better, cheaper service in the future
- work together to develop new, innovative and more consumer friendly payment systems
- ensure control of the UK payment systems cannot be used to stifle competition.
The OFT will be responsible for enforcing the rules, and will have new powers to impose financial penalties. It will also be able to propose modifications to the rules to deliver effective competition in response to changing market circumstances.
The Government is proposing a number of measures to assist the OFT in discharging these functions, including :
- specific duties in relation to the exercise of its new powers
- specific and separate reporting and decision making procedures for payment systems issues
- a separate annual report on payment systems issues together with a separate identified budget.
Commenting on the OFT role, Andrew Smith said:
"After careful consideration of how best to deliver an effective regulatory regime for consumers, we believe that this can best be achieved by using the existing framework and competition focus provided by the OFT.
"These proposals demonstrate our determination to tackle the competition concerns raised in the Cruickshank report effectively and in a way which will deliver wider benefits."
NOTES TO EDITORS
1. The Chancellor announced the setting up of Don Cruickshank's review in the Pre-Budget Report of 3 November 1998 (PBR press release HMT3).
2. Its terms of reference were to :
- examine the banking sector in the UK, excluding investment banking;
- examine the levels of innovation, competition and efficiency in various sub-markets, including SMEs;
- look at how these levels compare with international standards;
- consider whether there are options for change which the industry or Government should consider.
3. Don Cruickshank's report 'Competition in UK Banking: A Report to The Chancellor of the Exchequer' was published on 20 March. The report and associated press release are available on the Banking Review website.
External links
4. The Government's initial response to the report was announced in the Chancellor's Budget Statement on 21 March (Budget press release HMT1).
5. On 4 August Treasury published 'Competition in UK Banking, The Cruickshank Report, Government response', (Treasury press release 98/00).
6. The consultation document 'Competition in Payment Systems', is available by clicking on the link below. Printed copies are available by calling 020 7270 1634.
7. The Government would welcome responses to this consultation from all interested parties. It may in due course publish a summary of responses and asks that any confidential material could be clearly identified as such and confined to a separate Annex. Responses should be sent by 20 March 2001 to:
James Parker Financial Services Regulation HM Treasury Allington Towers 19 Allington Street London SW1E 5EB
Tel: 020 7270 1638
Fax: 020 7451 7611