Watchdog criticised over plans to combat dominance of big banks

The UK’s competition regulator has been accused of “putting foxes in charge of the henhouse” after asking the banking industry’s own lobby group to design a supervisory body to combat the dominance of big banks.

Dozens of organisations including fintech start-ups, established tech groups like Experian and Equifax, consumer representatives and a cross-party group of MPs have raised concerns over the Competition and Markets Authority’s plan to use proposals drawn up by UK Finance as the basis for a consultation on the future of so-called open banking rules.

Open banking forces banks to share valuable customer data with other financial services providers, allowing smaller firms to make faster lending decisions or offer new services such as budgeting tools.

It was designed to encourage competition after a CMA investigation in 2016 found that established banks “do not have to compete hard enough for customers’ business”. The CMA intended for open banking to bring a “revolution” in the UK banking market.

[Oversight] can’t be done by the people who have the most to lose, that makes no logical sense

James Lynn, co-founder of Currensea, said giving banks more influence over the rules was like “putting foxes in charge of a henhouse” or allowing them to “mark their own homework”.

“A group which is heavily funded by banks isn’t going to be proposing a future state which drives far more additional competition for those banks,” said Lynn, whose firm uses open banking to remove the fees banks charge on overseas card payments.

The rollout of open banking was managed by a temporary open banking implementation entity. Under UK Finance’s proposals, the nine banks targeted in the CMA investigation would be obliged to fund a “future entity” for three years, but after that they would be able to withdraw membership with six month’s notice.

Several groups including Innovate Finance, the trade body for fintechs, warned that the threat of big banks withdrawing could give them unfair leverage over the new organisation, discouraging innovation.

UK Finance also suggested the new group’s chair would be voted for by firms with “weighted” voting rights, sparking further alarm about what critics have called the “undue influence” of large banks.

Richard Davies, who worked on HSBC’s response to the original CMA investigation and now leads business lender Allica Bank, said: “There’s always been a big undercurrent of resistance from the big banks.” Eight of the nine banks targeted by the 2016 CMA inquiry have been reprimanded by the regulator for missing deadlines to introduce new services.

“[Oversight] can’t be done by the people who have the most to lose, that makes no logical sense,” Davies added.

Jana Mackintosh, UK Finance managing director for payments and innovation, said in response to the criticism that its proposals “are explicitly aimed at bringing in independence and broadening the type of firms that are represented”.

She stressed that UK Finance’s membership includes almost 300 firms including some fintechs, and said “it was this wide membership, alongside our expertise in this area, that meant we were best placed to convene the industry to consider the future of open banking.”

The CMA is due to respond to the consultation within the next month, and one person close to the situation said the CMA board would discuss its decision at a meeting on Wednesday.

The CMA said it was “rigorously analysing responses [to its consultation] to ensure people get the best banking deals.

“To help open banking grow beyond the 3m people and small businesses already using it in the UK, it’s crucial that customers continue to be at the forefront of future plans. That means the oversight of this initiative must be consumer-focused, independent and recognise the importance of all market participants, including fintech.”