It's unclear whether banks are overcharging their customers but more fees transparency is needed, a top regulator said Thursday.

It's not obvious to me that the public is being over charged in retail banking, Andrew Bailey, deputy head of the Prudential Business Unit at the Financial Services Authority, told an industry conference.

What is very hard is for the public to work out for what it's paying for the simplest elements of banking services and that of course has an effect on things like switching (accounts), Bailey added.

The UK sector is dominated by four big banks -- HSBC , Barclays , Lloyds and RBS .

Most retail customers don't pay a monthly or annual fee for their account unlike on continental Europe.

Bailey said there was no such thing as free banking and the notion of it distorted the landscape, leading to inconsistent charges across products.

Vera Cottrell, principal policy advisor at UK consumer lobby Which? said customers are being overcharged while at the same time banks have access to billions of pounds held in deposits which would be far more expensive to tap on the open markets.

It's pretty clear from our research on overdrafts that some of the charging structures are incredibly high, Cottrell told Reuters.

The biggest four banks account for 77 percent of personal current accounts and 85 percent of SME accounts, and the financial crisis had impaired competition by allowing Lloyds' takeover of HBOS and weakening some smaller banks.

The UK government hopes that the sale of nationalised Northern Rock bank to Richard Branson's Virgin group will boost competition.

Banks may have to undergo a probe if competition has not improved by 2015, if a review of the personal current account market has not also prompted an investigation before then, an independent panel said in September.

(Reporting by Huw Jones)