Watchdog reviews current accounts
The Office of Fair Trading (OFT) warned it could take "radical" action if the sector cannot show it is becoming more competitive and consumer focused.
The launch is confirmation of an announcement made in 2010 that the OFT planned to launch a review into the sector this year.
The body said it has not deliberately timed the review to coincide with recent customer outrage over banks' behaviour, although it comes as comparison websites and building societies are reporting a surge in customers looking to switch deals, following NatWest's IT meltdown and Barclays' Libor-fixing scandal.
The Financial Ombudsman Service said current accounts are one of its most complained-about financial products, attracting 15,000 new complaints last year. So far this year, over 15,000 inquiries have been made to its frontline helpdesk, and the ombudsman received 3,543 new cases between April and June.
Complaints to the ombudsman have fallen from a record high in 2007/08, due to a drop in complaints about the legality of bank charges, but the ombudsman said it still regularly deals with complaints including disputed transactions, financial hardship and debt, packaged accounts and delays in switching accounts.
The OFT will ask customers about their recent experiences as well as speaking to banks and trade bodies during the review, which forms part of a wider drive to make the banking sector more focused on the consumer. It could decide to go to the Competition Commission, if the right conditions are met.
Claire Hart, OFT director said: "We want to understand what progress banks have made in providing customers with better information about account charges, greater control over their accounts and easier account switching facilities.
"More generally, we are concerned that a lack of effective competition means the retail banking sector is not working in the interest of customers and businesses. We want to see banks become more customer-focused and this will be the central theme of our programme of work going forward."
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