All of Britain's investment banks are under investigation
The Financial Conduct Authority confirmed in a statement that it will probe the lenders to find out whether there is enough competition and quality services in the industry.
It said that its decision to investigate the banks followed a wholesale sector review. This involved the FCA meeting with around "70 organisations and individuals, through a combination of round-tables and one-to-one meetings and received 40 written responses."
This means Britain's biggest banks could face fines if the FCA finds any lender to have conducted price fixing or formed market monopolies.
"We have chosen this particular area because the benefits of effective competition in the market could be significant. The UK is a global hub for investment banking, and this sector plays a crucial role in our economy, helping companies raise capital for investment, expansion and funding ongoing operations," said Christopher Woolard, director of strategy and competition, at the FCA in a statement.
"What was clear from the discussions we had with stakeholders and firms was that there are unanswered questions about potential conflicts of interest and value for money in this market. This will form part of our wider work in the wholesale markets, alongside the Fair and Effective Markets Review."
The move could be a boon for Britain's challenger banks which are mopping up disillusioned customers.
While the FCA's investigation covers the investment and corporate banking side of the business, retail customers are becoming fed up with the deluge of scandals and probes into their lenders.
Philip Monks, the boss of one of the UK's youngest banks Aldermore, told us this week that "there is a general malaise in the incumbent banking world but we have no legacy issues, which has helped more customers get on board."
Last year, 1.16 million people switched bank accounts, say the Payments Council. This is a 12% rise from 2013.