FCA sets out steps to support small businesses' access to finance

• Small and medium-sized enterprises (SMEs) could access finance more easily after the FCA sets out practical steps to help

An FCA review found no evidence that its regulation is a major barrier for SME access to finance. Many of the challenges identified relate to wider market, information and capability challenges. 

The review found that the challenges are often greatest for microbusinesses, which make up 95.5% of all SMEs and are less likely to use external finance. Limited awareness of finance options, complex application processes, duplicated checks, and difficulties accessing products suited to businesses with limited collateral or largely intangible assets were all highlighted as issues.

As part of its commitment to supporting growth, the FCA is focusing its next steps in three areas to help reduce friction: 

• Supporting a more proportionate regulatory regime through Consumer Credit Act reform.
• Helping unlock the benefits of open finance, including prioritising SME lending as a key use case.
• Monitoring industry work to explore whether digital verification could reduce duplication in customer checks, while maintaining effective financial crime controls.

Graeme Reynolds, FCA director of competition, said:

'Small businesses need to be able to access the finance they need at the right time to start up, grow and invest. Our regulation is not a major obstacle - that does not mean the system works as well as it could. We're focusing on where we can make a practical difference by reducing unnecessary friction, supporting a more proportionate regulatory framework and helping unlock the benefits of open finance.'

The review complements wider government and regulatory work to improve access to finance for smaller businesses. Where stakeholders identified issues that fall outside the FCA's remit, such as on alternative lending, it has shared those findings with the relevant government departments and bodies best placed to address them.

Notes to editors

1. The FCA's review examined whether its regulation affects SMEs' ability to access finance.
2. It was carried out as part of the FCA's wider commitment to support sustainable economic growth and improve the effectiveness of financial markets.
3. The review was informed by extensive engagement with SME representative organisations, lenders, trade associations, government departments and public bodies involved in SME finance, as well as academic research benchmarking SME lending in the UK against global comparators.
4. The review considered both the role of regulation and wider market factors affecting access to finance for SMEs.
5. The review focused on the part of SME lending most directly affected by FCA regulation, namely business lending of £25,000 or less to sole traders and small partnerships, which generally falls within the consumer credit regulatory perimeter. Much SME lending, including lending to limited companies, business lending above £25,000 and parts of the alternative lending market, falls outside the FCA's remit.
6. The FCA recently published its open finance roadmap and will continue developing proposals for the first open finance scheme. An upcoming discussion paper will outline options and considerations for the first open finance scheme, with SME lending one of two prioritised use cases. The FCA will continue engagement, further infrastructure testing and TechSprints.
7. The Treasury is reforming the Consumer Credit Act to support a more modern and outcomes-based regime, while retaining key protections. Following legislative reform, the FCA will consult on the future regulatory framework, helping to address concerns about the cost and complexity of some regulated SME lending.
8. UK Finance is supporting work on a voluntary digital verification service that could reduce duplication in customer checks. The FCA is monitoring this industry-led initiative to understand whether it could help reduce friction for SMEs while maintaining effective financial crime controls.