NEWS: ‘Unfair’ and ‘harmful’ financial rules hurt Britain’s small businesses

Unfair banking practices and “damaging” financial regulators are harming small businesses and putting innovation and growth at risk, Parliament’s Treasury Committee has warned.

A commission inquiry report into access to finance for small and medium-sized enterprises (SMEs) says lack of supportive policies is compounding problems for businesses that survived five “torrid” years, which included the pandemic world and the energy crisis.

MPs said a number of practices were harming businesses, including the use of personal guarantees – where borrowers often have to put up their home as security for a loan. The commission’s report also highlighted growing concern over so-called “debanking” – when customers’ accounts are closed by their bank – and highlighted that lenders have closed 140,000 SME accounts alone 2023, often without adequate explanation.

Committee chair, Conservative MP Harriett Baldwin, said: “There is no denying that small businesses have had a torrid time over the last few years. “Unfortunately, what we discovered during the investigation is that there are instances where banks and regulators are unnecessarily making the world tougher for small businesses.”

The committee made several recommendations, including that the City regulator, the Financial Conduct Authority (FCA), require banks to be more transparent about their account closure decisions and share quarterly data on their closure decisions.

MPs also suggested that the FCA should strengthen rules around the misuse of personal guarantees and expand the remit of the Financial Ombudsman Service so that it can appropriately deal with complaints from related firms.

The Federation of Small Businesses lodged a “super-complaint” with the FCA over the allegedly unfair use of personal guarantees by lenders late last year.

The lobby group called on the government to expand the FCA’s responsibilities so that all loans below a certain amount are subject to regulation and specific rules are introduced to appropriately balance the interests of borrowers and lenders. Small business loans are not regulated in the UK and businesses do not have the same protection as personal borrowers and consumers.

A Treasury spokesperson said: “SMEs play a vital role in fueling economic growth, which is why in the Budget we extended the Growth Guarantee Scheme, which provides a guarantee of 70 % on funding of up to £2 million for small businesses to help them grow.

“And we have already taken action on debanking – requiring banks to explain and delay any decision to close an account under new rules – and remain committed to the legislation. »