FCA publishes 2022 retail banking model update

FCA has published its 2022 final report on competition in retail banking business models, following on from its 2018 reports. As a result of the 2018 reports there were a number of regulatory changes, specifically to higher-cost credit product regulation.

In 2022, FCA’s key findings are:

• large banks are in a strong position but there is increasing competition, particularly for PCAs;
• low consumer engagement has previously contributed to high barriers to market entry and expansion;
• digital challengers have rapidly gained shares in both the personal and business current accounts markets;
• yields have fallen in the mortgage markets, where competition has intensified, and also in consumer credit, particularly on unarranged overdrafts;
• large banks did proportionately more micro-business lending under government schemes than other banks; and
• some consumers and small businesses have benefited from increased competition and innovation but consumers with heavy branch usage or lower barriers may have had worse outcomes.

Going forwards, FCA sees significant room for further improvements, much of which will depend on Open Banking and Open Finance. It also wants to encourage innovation, while managing the risks, which it is doing through Innovate and the Early Oversight project. The Government is also considering wider changes to the payments framework, and FCA will proactively supervise firms in the payments and e-money sector and is also working with the Government on bringing BNPL within the scope of regulation.  Finally, it both welcomes the way in which Big Tech firms can increase functionality and quality of products, while noting the competition and entry risks that stem from their size and access to data.

Meanwhile, the overarching Consumer Duty plans continue, with vulnerable customers continuing to be a focus. And FCA’s supervisory efforts examine a wide range of data and make use of the portfolio strategy letters to set out expectations on firms.

FCA is welcoming views on the report, and asks for written submissions by 31 March.

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