David Ruffley MP questioned Sir Donald Cruickshank about Competition and Choice in the Banking Sector

Tuesday, 30 November, 2010

On the 30th November 2010, David Ruffley MP questioned Sir Donald Cruickshank about Competition and Choice in the Banking Sector

The text of Mr Ruffley's interview can be found below and the full text of the proceedings can be found here

Q123 Mr Ruffley: I was struck, Sir Don, on re-reading it, by how insightful your 2000 review was. You've updated us and, whether or not profits are super- normal, I think we can all agree that the money transmission system is something that needs to be addressed. You put it rather well: "Would we allow Google to manage the internet? No, never. So why do we allow banks acting in concert almost absolute control over the money transmission systems, over which all financial transactions take place?" I think that's the nub of it, and for clarity I just want to return to some of the answers you gave a few moments ago.

If you were to be advising the current Chancellor of the Exchequer now, what would you advise him to do regarding the transmission system?

Sir Donald Cruickshank: I would advise him to give the CPMA both the competition objective up front, and also give it powers to license money transmission systems-a licensing regime, in other words. It would be a class licence. It wouldn't need to be specific to the different systems, and in the legislation I would give the CPMA objectives on using their powers under that licence, and they would have sanctions, a bit like Ofcom has. It varies over the utilities, but wherever there is a network there is an authority that licenses activity and has sanctions: in the internet it's an informal one, in telecoms it's very formal, but it is the same thing.

In the legislation they would have obligations to pursue-and I have just listed a few things here-price transparency; governance; fair, reasonable and non-discriminatory access to these systems; efficient wholesale pricing; barriers to switching and fair trading generally. These are the headings of what would be line items in the legislation. So it would be a specific capacity of the CPMA to license, scrutinise and sanction the money transmission system operators.

Q124 Mr Ruffley: Could you just give an estimate-and you probably need advance notice of this question-of the costs of putting that new regime in place? What should be the objective in terms of cost?

Sir Donald Cruickshank: I ran Oftel-albeit in simpler times-with maybe 30 or 40 people in this area. We are only talking about 10 or 12 licensees ever, because it is one of these situations where if there is a network everybody has to be a member of it, so that simplifies things no end.

Q125 Mr Ruffley: Final question, if I may, Chairman. You've undertaken to give to the Committee some of the documents you mentioned in connection with Treasury opposition some years ago-

Sir Donald Cruickshank: Well, not many documents. I'm prepared to set out not just my recollection but the facts of the matter, plus recollection of meetings and notes of meetings, yes.

Mr Ruffley: Sure. I think we will read them with interest, but could you give us a sense of what the Treasury objection is institutionally? Whatever it was a few years ago, it is probably likely to be the same today. What do think their big problem was with your recommendation?

Sir Donald Cruickshank: Because by the time I reported on money transmission systems the FSMA, the Act, had become a fact. Then I had to say there should be another body that should be legislated for, and the Treasury-like today, this getting rid of quangos never ends, does it?-just fell away from the thought of generating the energy and the political time in the House to create another regulator.

However, this time, because the CPMA is not yet in place and the legislation is not yet before you, I suspect it is simple to put no more than two or three clauses into the legislation to give effect to something that the Treasury just couldn't face up to in 1999-2000.

Q126 Mr Ruffley: Do you think this is the number one, most important, change that is within the power of the Government at the moment to improve banking competition?

Sir Donald Cruickshank: For retail banking, and by "retail" I mean current accounts, deposits, secured lending, unsecured lending and money transmission systems-these are the five markets I'm talking about, although there are a lot of other things in the legislation they have to get right-

Mr Ruffley: But this would be the big one?

Sir Donald Cruickshank: For the purposes of what we're talking about today, yes.