FCA consults on regulatory barriers to SME finance

The Financial Conduct Authority (FCA) has launched a consultation looking at how its regulations affect SME access to finance, including the impact on different firms and sectors, and whether the current regulatory regime directly affects the costs and/or the perceive risk of lending to the SME sector.

The FCA review will look at barriers to SME finance, as well as opportunities for future regulation to better support the provision of SME finance, such as industry collaboration and adopting innovation and new tech.

It will consider sector-specific issues in getting finance, particularly for high-growth sectors such as advanced manufacturing, clean energy industries, creative industries, defence, digital and technologies, financial services, life sciences and professional and business services, and consider future trends including the role of open finance. 

The regulator has also commissioned research into comparable international jurisdictions’ approach to SME access to finance. This research will consider the outcomes and examine the key market structures, policy interventions, and institutional features that may explain cross country differences.

The announcement comes the day after a report from the British Business Bank (BBB) identified ““structural constraints” affecting the market for SME finance, noting that the UK currently ranks 34th out of 40 countries reporting their outstanding SME lending according to OECD analysis. Of the six below the UK, only one, Canada, is a fellow G7 member.

Regulation

The FCA says it wants to understand how its regulation can support SME finance across debt, equity, hybrid and alternative finance. While the focus will be on financial products and services that it regulates, the FCA will also consider the impact of its regulation on FCA-regulated firms that offer products and services to SMEs outside the regulatory perimeter.

The FCA is seeking stakeholders’ views on SMEs’ experience of applying for finance, including the process, outcomes and the support they received. It also wants to hear from providers and distributors of SME finance about any regulatory blockers or opportunities they have seen.

The deadline is 17 April, and comments should be emailed to SMEfinance@fca.org.uk.