'Open banking' regulation to make account switching moderately easier

People will find it slightly easier to move their bank accounts and avoid overdraft charges under new rules to be imposed by the UK financial watchdog in the coming months, though the measures have been criticised for not doing enough to level the field for smaller banks.

The Competition and Markets Authority on Thursday issued its final order for its rather limp "shake-up" of the banking industry that it said could save overdraft users an average of £180 a year.

According to the timetable published by the watchdog, by the first quarter of 2017 the larger high street banks will all need to have adopted a new standard interface to allow data-sharing between banks so that customers who would benefit from switching providers will be actively provided with this information and then move their accounts more easily.

The CMA intends to improve the existing current account switch service within a year by the introduction of this new 'open API'.

It said small businesses will also benefit from the Open Up Challenge run by innovation charity Nesta, which will enable the development and delivery of comparison and advice services, and new measures that aim to increase the transparency of cost and eligibility of SME lending.

The Financial Conduct Authority has agreed to take action in response to the CMA recommendations, including supporting the work on open banking, testing prompts designed to increase consumer engagement and alerts that increase customers’ awareness of their overdraft usage, publishing service quality information and reviewing the effectiveness of banks’ introduction of a monthly maximum charge for unarranged overdrafts.

"Open Banking will make a transformational change to banking for personal customers and small businesses," said Alasdair Smith, who led the retail banking investigation for the CMA.

"For the first time innovative and secure apps will provide personalised services and information to cover all financial needs in one place, and make it easy for people to find out what bank account is best for them.

"We’re also making banks send alerts to people about to slip into overdraft to help them try and avoid unnecessary charges."

Banks receive £1.2bn a year from unarranged overdraft charges.

The CMA calculated that the new text alert system, combined with its order to require banks to publicly announce their maximum monthly charges, "should mean significant savings in future for their hard-pressed customers".

Regulation challenged

When the provisional proposals were announced in November, Britain’s challenger banks raised objections to the CMA's reticence to make large structural changes, such as the breaking up of the big banks or forcing branch sales and rationalisation.

Moreover, the smaller banks claimed that compared to the major high street players they suffered from "disproportionate capital, expensive funding, access to payments infrastructure and excessive regulation".

More than three in four current accounts are held with Barclays, HSBC, Lloyds and Royal Bank of Scotland – something of a sore statistic for the challenger banks.