The government has been accused of caving to big banks and setting the scene for another financial scandal after refusing to heed calls by the influential Treasury select committee to regulate small business lending.
Business lending is still not regulated in the UK, an anomaly that has left victims without the protection of the Financial Conduct Authority, the City regulator.
“Whilst the 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 the House of Commons committee chair, Nicky Morgan.
“The FCA must be given the powers to provide protection to SMEs now. If the government continues to bury its head in the sand, scandalous events such as those at RBS’s Global Restructuring Group could re-occur.”
The consequences of a lack of regulation were highlighted last year when the FCA concluded a four-year investigation into RBS’s now-defunct GRG. Victims had accused GRG of pushing their businesses into failure before stripping them for assets that were later sold on. While the FCA found evidence of mistreatment, it said actions by GRG ultimately fell outside its jurisdiction, as commercial lending is unregulated in the UK.
In its response to the Treasury committee’s recommendations, the government said it “does not believe there is a clear case” for regulation, which could raise costs for lenders that would be passed on to businesses. It added that bank behaviour had “changed significantly” since the years following the 2008 banking crash, and noted that lenders were already signed up to a code of conduct for best practice.
The government’s response also prompted criticism by the SME Alliance, which represents business banking victims, for caving in to banking interests.
Nikki Turner, director of the SME Alliance and a victim of the HBOS Reading fraud, said: “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.”
She added: “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.”
