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 report from the committee’s inquiry into access to finance for small and medium-sized enterprises (SMEs) said a lack of supportive policies were compounding problems for firms that had survived a “torrid” five years, which included the global pandemic and energy crisis.
MPs said a number of practices were harming firms, including the use of personal guarantees – where borrowers often have to put up their home as collateral against a loan. The committee’s report also highlighted a growing concern about so-called “debanking” – when customers’ accounts are closed by their bank – noting that lenders had shut 140,000 SME accounts in 2023 alone, often without adequate explanation.
The committee’s chair, Conservative MP 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.”
The committee has put forward several recommendations, including that the City regulator, the Financial Conduct Authority (FCA), force banks to be more transparent about their decisions to close accounts and to share quarterly data on their closure decisions.
The MPs also suggested that the FCA should tighten rules around misuse of personal guarantees and widen the remit of the Financial Ombudsman Service so that it could appropriately address related business complaints.
The Federation of Small Businesses submitted a “super-complaint” to the FCA over the allegedly unfair use of personal guarantees by lenders late last year.
The lobby group has called on the government to extend the FCA’s responsibilities so that all lending below a certain amount is subject to regulation, and that specific rules be introduced that appropriately balance the interests of borrowers and lenders. Small business lending is not regulated in the UK, and firms do not enjoy the same protection as personal borrowers and consumers.
A Treasury spokesperson said: “SMEs play a vital role in fuelling economic growth which is why at the budget we extended the Growth Guarantee Scheme, which provides a 70% guarantee on finance up to £2m for small businesses to help them grow.
“And we have already taken action on debanking – forcing banks to explain and delay any decision to close an account under new rules – and remain committed to legislation.”