The U.K. government has reportedly rejected recommendations by the Treasury Select Committee that suggested stricter regulations on bank lending to small businesses (SMBs). Reports in The Guardian Friday (Jan. 11) said policymakers are speaking out against the government's decision to not regulate small business lending, arguing that it leaves SMBs unprotected, despite a slew of bank scandals impacting small business owners.
"Whilst the [Financial Conduct Authority (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," said Nicky Morgan, chair of the committee. "The FCA must be given the powers to provide protection to [SMBs] now. If the government continues to bury its head in the sand, scandalous events such as those at RBS' Global Restructuring Group could reoccur."
A government investigation into RBS found that the bank unfairly pushed some small business clients into its Global Restructuring Group, leading to additional financial burdens and, in some cases, bankruptcy for some of those firms. Last October, RBS CEO Ross McEwan spoke with reporters, noting that a lack of industry regulation allowed such mistreatment against small businesses to occur.
In response to the Treasury committee's recommendation, the government stated it "does not believe there is a clear case" to introduce small business lending regulation, pointing to higher costs to lenders that could be passed onto borrowers. The government also noted that bank behavior "changed significantly" following the 2008 financial crisis, and added that banks are signing up to an industry code to promote best practices.
"The government and the FCA are betraying British businesses, while acknowledging they are the backbone of this country, because they are unwilling to take on the big banks," said Nikki Turner, director of small business advocacy group the SME Alliance. "The idea that because the banks are not behaving as badly as they did a decade ago it's all OK is like inviting Hannibal Lecter to dinner because he hasn't killed anyone recently."