Banks 'must change or be broken up'

The banking sector may be broken up unless it shows a "step-change" in competition, the head of the Office of Fair Trading has said.

In a speech to bankers, John Fingleton said banks must provide the "right prompts" to help customers decide whether to switch account provider.

The issue of bank account switching was flagged last year by the Independent Commission on Banking which made several recommendations designed to make changing accounts easier for customers.

Mr Fingleton said: "It is not enough to make it easy to switch. Customers also need the right prompts to exercise their choice of provider.

"In banking markets consumers frequently face difficulties in understanding the true cost of running their account and comparing deals from alternative providers."

He said the sector is at a "turning point" with the emergence of new banks Virgin Money, Metro Bank and Tesco but said if "real change" is not seen, a "radical approach" must be considered.

The OFT chief executive said he is prepared to hand the sector over to the Competition Commission and warned the industry could face the same outcome as airports operator BAA: a forced break-up.

Mr Fingleton said: "A step-change is needed in the banking sector. Going forward we need to see evidence which demonstrates that the market dynamics of entry and switching are sufficient to drive stronger customer-focused competition.

"Without this the obvious question is whether the concentrated market structure of UK banking is the problem. And one way to consider this question is a reference to the Competition Commission."

Last year the ICB recommended that people and businesses wanting to change banks should be able to switch accounts within seven days.