HSBC, First Trust Bank broke SME loan competition rules, CMA says

The Competition and Markets Authority (CMA) said HSBC and Northern Ireland’s First Trust Bank breached undertakings made by the industry in 2002 to boost banking competition for small and medium-sized enterprises (SMEs).

The watchdog said it had issued detailed directions to the two banks to ensure the companies and their staff comply with the rules, which prohibit the practice known as bundling.

CMA chief executive Alex Chisholm said breaching the undertakings is “a serious matter”.

He said: “We have directed First Trust Bank and HSBC on the actions they must take to immediately correct the situation - so that it is clear to both their staff and their SME customers that obtaining a business loan is not dependent upon opening an account.”

The non-compliance came to light during an Office of Fair Trading (OFT) market study into the SME banking sector, conducted before the CMA took responsibility for competition.

All eight of the UK’s major banks - Bank of Ireland, Barclays, Clydesdale, Danske Bank, First Trust Bank, HSBC, Lloyds and RBS - will be required to carry out another audit and report back to the CMA by July, after staff at two other firms were found to have relatively low awareness about the undertakings.

Mr Chisholm said the banks will have to show they have the correct systems in place to ensure bundling does not occur.

SME customers should contact the CMA “with any concerns they may have about the compliance of any of the eight banks”, he added.

John Allan, national chairman at the Federation of Small Businesses, said the bundling of SME products is “unacceptable”.

He said: “This bad practice should have stopped by now. It does nothing to rebuild trust between banks and small business customers which is so badly needed, and is yet further evidence to for the need to create greater competition in banking sector.”

The banks involved must “act quickly to make sure it doesn’t happen again”, he added.

HSBC’s non-compliance came to light when an audit found text on its websites and online support tool that said businesses were required to have a business current account to become business loan customers.

Interviews with staff responsible for marketing and selling business loan and deposit products found high levels of understanding that the products should not be bundled, but mystery shopping exercises found lower awareness among customer-facing staff.

The CMA noted HSBC had taken additional steps to those required to ensure staff were aware of the ban on bundling. Up to 98 per cent of staff subsequently passed knowledge tests.

HSBC, which has 91 branches in Yorkshire, said: “Since the issue was discovered, we have been working with the CMA to implement a plan ensuring full compliance with the requirements, and will be regularly reporting back to the CMA.

“As part of our audit review, where we find a customer has received the wrong information, we will take action to ensure they have the right information going forward.”