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• SME fury after banks are 'let off'
  
• SMEs told to shop around for bank
  

The requirement on the banks to publicise changes in charges will, however, be retained. The behavioural undertakings designed to make the market more competitive by making switching easier and prices more transparent and by prohibiting the bundling of different products and services will remain in place.

In addition, the Competition Commission (CC) will be recommending to the Office of Fair Trading (OFT) that it should reinforce the awareness and the impact of the behavioural undertakings. In particular it will recommend that the OFT should actively monitor all SME banks' behaviour following the lifting of the price controls, and raise awareness of any worsening of their offers.

In addition, it wants the OFT to work with the banks to ensure that SMEs become more aware of the banks' obligations to make it quick and easy for them to switch accounts. The OFT should explore with the British Bankers' Association the scope for imposing the obligations on the banks under the Banking Code at its next review.

The temporary price controls were put in place following an investigation by the CC into the SME banking market. They require the four banks to make available to SMEs an account that offers an interest rate of at least 2.5 percentage points below base or free money transmission services, or both. They were intended as a temporary measure until the behavioural undertakings, which were designed to make the market more competitive, had time to take effect. The behavioural undertakings apply to nine banks including the four bound by the transitional undertakings.

CC Deputy Chairman Christopher Clarke said: "Having reviewed the evidence and advice from the OFT, we believe that these price controls are no longer appropriate. They were intended to be temporary and have now been in place for over four years. During this period, other significant banks, such as HBOS, Abbey, and Alliance & Leicester, have competed more strongly for SME customers and improved their market position."

"SMEs have raised their expectations of what banks should provide and are more likely to consider switching if they do not get what they want. They are therefore better placed to constrain the actions of the four banks which were subject to the price controls, Barclays, HSBC, Lloyds TSB and the Royal Bank of Scotland Group."

"Even so, we recognise that these four banks still have 85 per cent of the SME market. They will therefore remain bound to publicise any changes in their charges. Similarly all banks providing SME banking services will have to continue to comply with the undertakings on the ease of switching, transparency of prices and the prohibition on bundling of different products and services. The OFT will continue to monitor their compliance. We are also making recommendations to the OFT for further improvements to the SME market."

The deadline for responses to the CC's consultation on its provisional decision is 28 September 2007.

In response, the OFT said it welcomed the Competition Commission's provisional decision. The provisional decision, following a review of the market by the OFT, will boost competition to provide essential banking services to small business customers, according to the OFT.

The OFT's review and advice to the Competition Commission investigated changes in the market since the Competition Commission's previous report in 2002. It found that there had been sufficient improvement in competition to warrant removing the transitional undertakings agreed by banks following the 2002 report.

However, the OFT's review also noted continuing concerns around low levels of switching in the market, and a lack of price transparency for customers. The OFT recommended that the banks continue to be subject to behavioural undertakings agreed in 2002, including an agreement to ensure that customers are able to switch account quickly and simply. The banks will also be required to provide the OFT with information on their prices and compliance with other undertakings.

John Fingleton, Chief Executive of the OFT, said: "This is an important step in the development of further competition in the business banking sector. It will allow banks greater freedom to innovate and compete for customers, and will be most beneficial for those prepared to consider switching their banking service provider. The OFT will continue actively to monitor the market in future, and ensure the banks comply with their undertakings on switching and price transparency. If we find that competition is not working well for SMEs, we will consider further action.'

The provisional decision does not affect the ongoing market study or test case in relation to personal retail banking.