Treasury Committee takes evidence on the Vickers Report

Wednesday, 26 October, 2011

David Ruffley MP questions Nationwide and Yorkshire Building Society on competition.

Witnesses: Andy Caton , Corporate Development Director, Yorkshire Building Society, Graham Beale, Chief Executive, Nationwide, and Chris Rhodes, Group Product & Marketing Director, Nationwide, gave evidence.

ne Q272 Mr Ruffley: Just following on from Michael Fallon's questions about competition, we have seen evidence from the Building Societies Association that they see the low level of switching between providers of personal current accounts-the fact that it is low, relatively low-as showing high customer satisfaction. We, as a Committee, are generally sceptical about that, but if you shared our scepticism would not one way of engendering competition be for a portable personal current account? How do you view that prospect?

Graham Beale: There are a few points there. The first thing to say is that typically in the UK there are something like 6 million new current accounts created per annum and around about a quarter of those, 1.5 million, are switchers. So there is some switcher activity and it is 25% of the current flow of new accounts. I am not sure I would agree that it is a low level. 25% is quite a big proportion and is growing.

There is a lot of satisfaction certainly with the way the current accounts operate and typically we are seeing net satisfaction. This is people who are incredibly satisfied less those that are very dissatisfied, in the high 70% spectrum. So, yes, they have no desire to move because they have no motivation.

We are trying to increase switching and transfers within the UK by increasing our proposition, by giving certain commitments and guarantees that the process will run smoothly and if it does not we will sort it out and we will take all of the pain. The notion of having a portable account number, as similar to a mobile telephone number, for example, is very conceptually simple to understand and sounds quite attractive. The trouble is that the British banking system is the product of many years that revolves around unique sort codes and account numbers, and just the cost and complexity of moving from where we are today to your suggestion would be incredibly expensive and very difficult. I am not even sure it is possible to deliver.

I think if you were starting again, you would design something along the lines that you are suggesting, but the plain fact is we have 67 million current accounts in the UK right now and just the cost and complexity of moving them into this more mobile process would be incredibly difficult to deliver.

Q273 Mr Ruffley: Is there any institution in the banking sector and the building society sector that is advocating this at all?

Graham Beale: Not that I am aware of.

Chris Rhodes: Within the ICB report the Payments Council have picked this other system that effectively will act as a redirection of payments while the account is moving from one institution to another. It seems to be the favoured solution that should take most, if not all, of the issues away.

Q274 Mr Ruffley: Could I just move very quickly on to the FCA, which this Committee is looking at. Do you agree that the FCA should have a primary duty to have regard to or consider competition?

Graham Beale: I think if you look at the principal objective the FCA have, which is to protect and enhance confidence in the financial services sector, and then you look at the three operational principles that underpin that, which are enhancing and protecting the integrity of the financial system, making sure that there is efficiency and choice in terms of consumer activity, and protecting consumers, as a package of objectives, it seems to me that inherent in all of that there is a responsibility to make sure that there are appropriate levels of competition within the UK. I am not sure what is achieved by adding, as a principal objective, a competition clause, if you like. I think as well, the closer you get to that situation we all need to understand the relationship between the FCA and the OFT in terms of who is responsible for competition within the UK.

I take the view, which I think is the Government's view, that what the FCA has been designed to do will appropriately accommodate competition considerations but that we have established bodies that have principal responsibilities for competition within the UK.

Q275 Mr Ruffley: You are going to be regulated twice over, PRA and the FCA. Having regard to your experience of dual regulation in the tripartite structure, do you have any concerns, any fears or worries, about dual regulation under the new regime?

Graham Beale: I think it is going to be more complicated. There will be an overhead, because we will have two sets of day-to-day supervisors to respond to. I stand back though and if you look at the direction and the focus of regulation over the last, say, decade, pre-crisis we had a regulator that was almost obsessively focused on conduct of business matters and totally overlooked prudential issues, and since the crisis they have swung right the other way and they are focused entirely on prudential issues.

I therefore think that a model that says that we have a team that are specifically focused on conduct and a team that are specifically focused on prudential, one hopes we will get a more balanced approach. I am looking at this from a macro level in terms of the quality of the regulation within the UK. We will not know until we get there but the concept and the principles looks to me that we should end up with a more balanced outcome than we have experienced in the last decade.

See the full transcript here: