After the Competition and Markets Authority (CMA), the UK competition regulator, revealed four UK high-street banks have failed to comply with banking rules designed to keep customers safe, we ask if tougher penalties or consequences are required.
On Thursday, the CMA revealed that HSBC, Lloyds, TSB, and Allied Irish Bank (AIB) had all breached strict rules, failing to make the correct data about their products or services available to customers.
HSBC emerged as the biggest offender of the four, with the regulator directing the bank to implement changes to ensure it is not guilty of further breaches in the future.
The CMA explained that HSBC failed to keep information about its branches up to date, with 167 closed branches still listed as open – while two remaining open branches weren’t listed at all. It also failed to keep its annual rates for business loans and overdrafts up to date on its website.
Finally, the bank told some customers the incorrect maximum amount they would be charged for going into unarranged overdraft on their current accounts – which TSB was also guilty of.
Meanwhile, AIB and Lloyds were found non-compliant with high standards for open banking. AIB failed to make available the correct annual rates for some loans and overdrafts through open banking and on its website; while Lloyds failed to make addresses of 363 ATMs available through open banking.
“People deserve banks they can trust to serve them well,” explained Dan Turnbull, senior director at the CMA. “Having correct information is essential when making important decisions about our finances. Banks handling our hard-earned money should have adequate processes in place to ensure this happens.”
Fines would make ‘little difference’
The CMA introduced these rules in 2017, in an effort to ensure customers are more accurately informed about banks’ and building societies’ products and services.
“It’s disappointing that seven years on, we have to put in place formal enforcement measures to secure better compliance from a major bank like HSBC which, yet again, is in breach of the rules. The CMA will continue to closely monitor all banks’ compliance to ensure customers can clearly and confidently manage their finances.”
HSBC, Lloyds, TSB and AIB all received public letters regarding the breaches.
The CMA has not issued any fines or penalties for any of the four banks following the breaches. While some thought leaders in finance have voiced concerns regarding the ‘over-regulation’ of banks in the past, some may question whether public letters about breaches of seven-year-old rules are enough to ensure positive outcomes for customers in the future.
With this in mind, we ask if regulators should be issuing fines or penalties for these types of breaches in the future. “Yes,” says Jeremy Baber, CEO of fintech firm Lanistar.
“There should be fines and/or penalties levied against those institutions failing to comply with regulations, but the disappointing thing is it will make little difference. I am not saying there should be a two-tier system but all financial institutions are treated the same way by the regulator, so if a ‘big bank’ or a start-up has the same problem with Consumer Duty, they are treated the same way.
“This means a big fine for a ‘big bank’ can be absorbed, while a similar fine for a start-up would be catastrophic. Therefore, any fine or penalty must take into account the size of the business.”
How can regulators keep banks in line?
In April 2022, the CMA reprimanded HSBC for falling foul of the same guidelines. Despite this, it is clear the bank was unable to ensure it kept on top of its information in this instance. With this in mind, could it be said that it may have stayed in line if it had received harsher punishment?
Baber answers: “There is a fine balance between consequences for ‘genuine’ issues and those for minor ones, but how do you fairly differentiate? I believe a consequence system should help improve an institution’s service focus but ultimately it comes down to risk and reward. If the penalty risk is small versus the cost to fix an issue, then regrettably there will be no improvement as the easier task is to take the penalty rather than fix the problem.
“It also comes down to how the regulations are policed. Currently, the regulator does not have the financial or personnel resources to monitor the sector to enforce the need for improved outcomes. In addition, the consumer’s process to complain is longwinded and frankly off-putting, so there are many issues out there that go unreported as the consumer is simply overloaded with process steps to raise concerns.”
