This follows a joint market study on current accounts and banking services for small businesses.
Christopher Woolard, director of policy, risk and research at the FCA, said: “Whilst there have been some recent improvements, for small businesses, competition in the banking system isn’t working as it should.
“The market is still concentrated, switching between providers is low and those running small businesses don’t believe there is much differentiation in terms of the products on offer and the standard of service they receive.
“Small businesses are the lifeblood of the British economy, employing more than half of those in work in the private sector, which is why it is vital that they have access to a banking market that works for them.”
In line with its objectives, the FCA has already taken some steps to promote effective competition in the interests of consumers by reducing the regulatory barriers faced by new bank applicants who may provide more competition. In addition, the FCA has started a programme of work to promote competition and innovation by making it easier for start-ups and established businesses to bring innovative ideas into financial services markets.
As it develops its competition work more generally, the FCA will take account of small businesses as a distinct sub-set of consumers and will look at ways of improving their understanding of potential detriment and awareness of sources of financial advice.
Reacting to this morning’s announcement Craig Donaldson, chief executive, Metro Bank, said: “As the first new high street bank in more than 100 years, we understand the challenges that new competitors face.
“While work has been done to improve this, we desperately need a level playing field that allows new entrants to come into the sector and win customers. Importantly, these new entrants should offer differentiated banking models that suit different customers’ needs; giving customers a choice is the key.
“We firmly believe that SMEs are the most underserved section of the market, and an investigation into how we can improve this is vital. Improving the treatment and choice in banking for SMEs will be beneficial to the whole economy.”
Aldermore chief executive, Phillip Monks, also welcomed the news: “We… strongly encourage the opening of a wider inquiry into competition in the SME lending market.
“It is imperative that we identify why the market is not working in the best interests of customers at present and this inquiry will be key to ascertaining the challenges and potential solutions to this issue.
“It is highly concerning that the barriers to entry and expansion for newer and smaller banks remain significant and that the dominance of the big four continues, despite there being little difference in terms of the services they offer.
“More needs to be done to enable new entrant banks to deliver for SMEs where traditional banks are letting them down.”