Britain's banking industry, dominated by four big players, may need another investigation by the anti-trust regulator due to lack of progress in opening up the sector to competition, the main consumer watchdog said on Thursday.

John Fingleton, who heads the Office of Fair Trading (OFT), backed calls made last year by another government-appointed body which also said a Competition Commission probe might be necessary in three years time.

Fingleton said more than 10 years after British businessman Donald Cruickshank first looked at competition in the industry, the banking sector remained uncompetitive.

A step change is needed in the banking sector. Going forward, we need to see evidence which demonstrates that the market dynamics of entry and switching are sufficient to drive stronger customer-focused competition, Fingleton said.

Without this, the obvious question is whether the concentrated market structure of UK banking is the problem. And one way to consider this question is a reference to the Competition Commission (CC), he added in a speech.

Britain's banking industry is dominated by the Big Four of Barclays , HSBC <0005.HK>, and part-nationalised lenders Royal Bank of Scotland and Lloyds . Lloyds is the country's biggest retail bank.

British authorities have repeatedly probed the dominance of those four banks, as highlighted by a report which Cruickshank provided for the government in 2000.

However, the 2008 credit crisis reinforced the dominance of the Big Four, as banks such as Bradford & Bingley and Alliance & Leicester fell by the wayside while Lloyds ended up buying HBOS in a deal brokered by the Labour government of the time.

The OFT will review the personal current accounts (PCA) market - currently dominated by Lloyds - in the second half of this year.


The coalition government has already undertaken steps to reform the industry in the wake of the credit crisis, which saw Britain end up with an 83 percent stake in RBS and 40 percent in Lloyds after bailing out both banks to the tune of 66 billion pounds.

The government set up the Independent Commission on Banking (ICB) which last year recommended ring-fencing banks' retail operations from their riskier investment banking divisions.

The ICB also said the sector lacked competition, and both ICB head John Vickers and the OFT's Fingleton said banks had to make it easier for customers to change and switch over accounts from one bank to another.

Some new companies have entered the fray since the 2008 credit crisis, such as Metro Bank which launched in 2010 as Britain's first new high-street lender in more than 100 years.

Virgin Money has also strengthened its position by acquiring Northern Rock earlier this year, while the Co-Operative Group is in talks to buy some 600 Lloyds retail bank branches.

However, supermarket retailer Tesco's decision to delay its current account service highlights the problems that challenger banks face.

As already highlighted, these new competitors face real challenges to being successful. The biggest barrier to entry and expansion is likely consumer inertia, particularly in the crucial current account market, said Fingleton.

(Reporting by Sudip Kar-Gupta. Editing by Mark Potter)