The "big four" banks face being broken up as Britain's competition watchdog sets out plans for a full-scale inquiry that could result in a radical shake-up of the sector.

The Competition and Markets Authority (CMA) found measures so far to open up the market, dominated by Royal Bank of Scotland, Barclays, HSBC and Lloyds Banking Group, had not been effective enough.

It said key parts of UK banking lacked effective competition and failed to meet the needs of personal consumers or small and medium-sized-enterprises (SMEs).

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The CMA announced a consultation over its provisional decision to launch a full-scale 18-month inquiry, which could result in a series of reforms.

These range from enhancing information provided to customers to banning complex fees, capping overdraft charges and forcing banks to allow smaller rivals to use their branch networks or payment systems. The CMA said going further and imposing so-called structural remedies such as forcing the break-up of banks could be expensive.

It cited the £1.4 billion cost to taxpayer-backed Lloyds Banking Group for hiving off hundreds of branches under the TSB brand under European rules on state aid.

CMA chief executive Alex Chisholm said: "Competitive personal and SME banking markets are essential to households and businesses. "Significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks."