By Andrew MacAskill and Huw Jones
LONDON (Reuters) - Long-awaited measures to break the market dominance of Britain's biggest banks, including a cap on fees for unauthorized overdrafts, were criticized on Tuesday by consumer groups as insufficient to boost competition.
The Competition and Markets Authority's recommendations, following a near three-year, 5 million pound ($7.2 million) probe into high street banking, shied away from radical measures like breaking up lenders or ending free in-credit banking.Regulators and lawmakers are keen to increase competition in a sector dominated by the four lenders -- Lloyds Banking Group (LLOY.L), Royal Bank of Scotland (RBS.L), Barclays (BARC.L) and HSBC (HSBA.L) -- which control more than three-quarters of current accounts and provide nine out of 10 business loans.
The CMA's proposals disappointed consumer groups, analysts and the new entrants in banking known as challenger banks which are bidding to poach market share from the biggest lenders. These include Secure Trust (STBS.L), Virgin Money (VM.L), Aldermore (ALD.L), Shawbrook (SHAW.L) and Metro Bank (MTRO.L).
"This inquiry achieved little more than to propose basic information measures that the big banks should have introduced years ago," Alex Neill, Director of Policy and Campaigns at Britain's largest consumer body Which?, said.
The British Bankers' Association (BBA), which represents the industry, was among the few groups to welcome the plans.
The CMA's report focused on improving transparency to give customers and small businesses more information to shop around, such as by forcing banks to join a price comparison website.
It also said bank charges were too complicated and many customers and small businesses, most of whom stay with the same lender for more than a decade, were unaware if they were getting good value for money.
To address this it proposed making it easier to move accounts by forcing banks to introduce technology so their customers' accounts history can be shared easily with rivals.
Stakeholders have until June 7 to submit feedback on the measures before a final report is published in August, with the remedies in force by early 2017.
Several smaller lenders said they didn't go far enough.
"I do not think the CMA's decisions will shake the foundations of UK banking," Phillip Monks, head of Aldermore, said.
The CMA decided against more radical measures such as allowing customers to keep their bank account number when they switch lenders, saying this was too expensive.
Alasdair Smith, a member of the CMA panel, said radical changes like easing bank capital requirements to encourage new entrants were matters for regulators like the Bank of England.
Instead the CMA is focused on "nudging" customers and businesses into being more pro-active in their choices.
New ways of banking emerging from the "fintech" sector will also help increase competition, the watchdog added.
But Rishi Khosla, the founder of challenger lender OakNorth Bank, said small firms suffered more from a lack of specialist available loans rather than poor price transparency.
(Editing by Keith Weir and Alexander Smith)