FCA publishes 2022 Final Report on competition in retail banking markets

The Financial Conduct Authority (FCA) published its final report into competition in retail banking markets on 20 January 2022¹. The publication builds on the regulator's strategic review of retail banking business models, following its 2018 Final Report and 2018 Progress report¹. The objectives of the review were set out in the Purpose and Scope paper of October 2017¹.

The FCA's analysis found that greater competition in retail banking is driving choice and lower prices for consumers and small businesses, despite the financial impact of the pandemic¹. On mortgages, the research indicates that intense competition, partly driven by the increased use of brokers, has benefited mortgage borrowers through lower interest rates, though these make it more difficult for smaller lenders to compete¹. The FCA also indicated that pandemic-related forbearance resulted in a drop in yield on authorised overdrafts, while policy measures for unarranged overdrafts resulted in a sharp contraction in yields¹. It said it would be important to investigate what that contraction means for how customers access credit¹.

The report also found signs that large banks' historic advantages are starting to weaken, driven by digital innovation and changing consumer behaviour¹. Adoption of digital innovations by banks and their customers, accelerated by the pandemic, has improved service quality and satisfaction, particularly for mobile and app-based users¹. The FCA noted that further improvements through innovation are likely to be enabled by initiatives that allow the sharing of consumer data in secure and convenient ways¹.

The FCA is seeking feedback on the 2022 Final Report findings¹. It said it will discuss the points raised with firms and consumer organisations, and is keen to hear from other stakeholders¹. Written submissions can be sent to StrategicReviewofRetailBanking@fca.org.uk by 31 March 2022¹.

Why it matters for households

The findings cover the markets households use for current accounts, overdrafts and mortgages. The FCA reports that competition has contributed to lower prices and more choice for consumers and small businesses, and that mortgage borrowers have benefited from lower interest rates amid intense competition, partly driven by increased broker use¹. The same competition makes it more difficult for smaller lenders to compete, according to the research¹.

For overdraft users, the report records two separate effects: a drop in yield on authorised overdrafts linked to pandemic-related forbearance, and a sharp contraction in yields on unarranged overdrafts following policy measures¹. The FCA said it would be important to investigate what the contraction means for how customers access credit¹. No specific figures for those yield changes are given in the report as summarised¹.

The report also records that digital adoption, accelerated by the pandemic, has improved service quality and satisfaction, particularly for mobile and app-based users, and that large banks' historic advantages are starting to weaken¹. The FCA's regulation of financial firms sits alongside the competition remedies created by the CMA retail banking investigation; the wider framework is set out in our guide to financial regulation in the UK.

What happens next

The FCA will discuss the report's points with firms and consumer organisations and is seeking views from other stakeholders¹. Written submissions on the 2022 Final Report are invited at StrategicReviewofRetailBanking@fca.org.uk by 31 March 2022¹. The FCA notes that the report highlights organisation-wide priorities where the strategic review can inform further work¹. No further dated steps beyond the 31 March 2022 submission deadline have been reported¹.