A cross-party committee of the UK parliament has condemned the unfair debanking of legitimate businesses. In addition, the Treasury Select Committee calls out what it calls substandard processes for resolving disputes between SMEs and banks.
The committee calls on the Prudential Regulation Authority not to go ahead with plans to scrap the SME supporting factor in the new Basel 3.1 standards. The TSC says it could lead to UK small businesses falling behind their European and American competitors.
Go deeper with GlobalData
The Committee says that any small business doing legitimate work should be able to access a bank account. Cross-party members condemn the debanking of legitimate businesses across various ‘undesirable’ sectors. These include defence, pawnbroking and amusement machines. MPs received evidence that banks have closed or denied accounts based on the nature of their work.
140,000 SMEs debanked in the past year
During the inquiry, MPs received evidence that more than 140,000 small businesses had been debanked in the last year. At least 4,214 of the closures were attributed to ‘risk appetite’ without a clear and consistent definition within the industry. Many banks do not appear to be tracking formally whether the reputation of a firm or industry was considered when businesses were debanked. It finds that banks are using catch-all terms to define reasons for closure.
The Committee says the FCA should force banks to be more transparent about why decisions to debank businesses are taken.
Gap in Financial Ombudsman Service remit impacts SMEs
The Committee has also recommended that the Financial Conduct Authority gives the Financial Ombudsman Service the powers to address personal guarantees for smaller firms. There is a gap in its remit which means small businesses are not receiving the same support as consumers.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataOver the course of the inquiry, it was made clear in the evidence that the landscape has become more difficult for small businesses in recent years. One piece of written evidence showed the success rate of SME applications for bank loans fell from 80% in 2018 to around 50% in 2023.
Chair of the Treasury Committee, Dame Harriett Baldwin, said: “There’s no hiding from the fact smaller firms have had a torrid time over the last few years. Unfortunately, what we have found over the course of the inquiry is that there are some instances where banks and regulators are making a tough world for small businesses needlessly tougher.
Banks and regulators can’t wave a magic wand and solve all of the problems facing small businesses in this country. But they can certainly do more than they currently are. I hope banks, the regulators and the Treasury take careful note of what we’ve uncovered.”
ThinCats MD responds to TSC report on SME Finance
Commenting on the Treasury Committee report on SME Finance, Ravi Anand, MD ThinCats said: “The Treasury Committee is right to point out that banks’ ability to provide finance to SMEs will be diminished if the PRA goes ahead and scraps the SME supporting factor.
“An important change that could have a radical impact would be to enable non-bank lenders to source their funding at the same rates enjoyed by the banks, thereby reducing the cost of borrowing for SMEs. Secondly, when an SME is declined for a loan – usually by its incumbent bank – the bank is supposed to refer the SME to other potential lenders via the British Business Bank Referral Scheme.
“However, this scheme is not working as intended and we are pleased they suggest it should be reviewed. Currently many SMEs give up their search for finance too soon, unaware of the potential alternatives.”
High street banks every day show their disinterest for SMEs through their behaviour: SMEB
Andrew Martin, CEO and Founder of SMEB said: “High street banks every day show their disinterest for SMEs through their behaviour. The numbers speak for themselves – hundreds of thousands of businesses de-banked – often with little or no notice. Whole sectors of the economy are blocked off under increasingly draconian policies. Today’s report shows how systematic failures in the banking system are threatening to strangle the engine of our economy. More needs to be done to stand up for SME’s and ensure fair access to finance. The government should introduce a barometer to measure lending success, and cap the commercial agreement in the same way they did for the subprime sector.”
