British Treasury: banks are “unfair” to SMEs

Banks have been accused of using “unfair banking practices” when dealing with small and medium-sized businesses, preventing them from accessing essential services, while lacking transparency in their “unbanking” criteria.

The House of Commons Treasury Committee published a report on Wednesday revealing that UK-based SMEs have less confidence in their ability to access necessary banking services. More than 140,000 business accounts were closed by lenders in 2023 alone, according to the report.

These accounts were often closed without notice or reasons, according to previous findings published in February by the commission. Additionally, the findings reveal that banks have become more reluctant to offer accounts to businesses in legitimate industries considered “undesirable,” such as defense and pawnbroking.

Unbanking practices have also become prominent, with the National Pawnbroker Association stating in its report that banks are “opaque” in their decision to close a business’s bank account, while “systematically denying financing” to their industry. The committee said it received 119 written statements and held four testimony sessions.

Andrew Martin, CEO and founder of British fintech company SMEB, said the behavior of big banks shows their “disinterest” in SMEs and that “increasingly draconian policies” are excluding swaths of the economy .

“Systematic failures in the banking system threaten to strangle the engine of our economy, and more must be done to defend SMEs and ensure fair access to finance,” Martin said.

Following the investigation, the commission called on the Financial Conduct Authority to force banks to disclose the number of businesses they debanked each quarter, as well as the reasoning behind their decision. Furthermore, he renewed his call for the government to pass new legislation to further regulate banking practices.

Additionally, the commission called for the Business Banking Resolution Service, an independent body set up by banks to handle disputes between lenders and small businesses, to be dismantled due to its lack of effectiveness. The service has cost £40m to run and has so far only managed to resolve 58 disputes, the report said.

The committee also warned the Prudential Regulation Authority that the introduction of “tougher capital requirements for SMEs” via the Basel 3.1 standards risked further worsening market conditions for businesses.

According to data published by the Department of Trade and Business, there were 5.6 billion private sector businesses in the UK in 2023, up from around 6 billion in 2020, before the Covid-19 pandemic.

The report includes a number of recommendations to the government, which now has two months to respond.