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The Analysis News & Opinions

Government committee calls for regulation of SME lending

The Treasury Committee has published responses to the SME Finance report produced by the government and the Financial Conduct Authority (FCA), and insisted that small-business lending required further regulation. Commenting on the response, Nicky

Morgan, chair of the Treasury Committee, said: “The Treasury Committee has argued that loans to SMEs should be regulated. Whilst the FCA has noted that it is reasonable for government and parliament to assess what it regulates, the government has flat-out – and wrongly – refused to bring commercial lending into regulation. “Committee members believe that

any legislative change in the regulatory perimeter would attract support across the House of Commons and is something that the house could constructively pursue now. “The FCA must be given the powers to

provide protection to SMEs now. If the government continues to bury its head in the sand, scandalous events such as those at RBS’ GRG could re-occur. “The committee also called for the

introduction of a Financial Services Tribunal for SMEs to settle disputes with their bank that will be too complex for the Financial Ombudsman Service under its new remit. “There is cross-party support to provide

enhanced protections and improved access to justice for SMEs, so it is disappointing that the government will not pursue our recommendations. “We will continue to scrutinise SME

finance, regulation and redress.” In October 2018,

the Treasury

Committee published its report on SME Finance. Its conclusions included: l A Financial Services Tribunal was needed to handle complex SME disputes. l Expanding the Ombudsman’s remit to handle SME cases should not be rushed through. l Commercial lending should be regulated to protect SMEs.


l The Treasury should develop strategy to overcome SMEs’ unwillingness to apply for finance. l Treatment of some SME customers has been “scandalous”. l Brexit is an opportunity for the capital- requirement regime to better support competition. l RBS’ Alternative Remedies Package should be administered in as timely a manner as possible. In a statement, issued to welcome the

response, the Lending Standards Board said: “We believe that voluntary self-regulation, underpinned by a robust and proactive oversight framework is a viable alternative to statutory regulation and it is encouraging to see that the Standards of Lending Practice have been recognised as setting good

practice in an important and evolving area of lending. “This progress has been made possible

through our registered firms’ commitment to the standards and the part they can play in setting high standards of conduct within the business lending space. “We share government’s opinion that the

Financial Ombudsman Service reforms – both expansion of

the ombudsman’s

eligibility to include small businesses and the commitment of the industry to provide a voluntary ombudsman scheme for businesses with a turnover between £6.5m and £10m – will also create a strong dispute-resolution mechanism for UK SMEs. “We are pleased that the Standards of

Lending Practice will have a role to play in this.”

February 2019

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