Regulation not major barrier to SME finance, review finds
A Financial Conduct Authority review found regulatory rules are not a major barrier to small business lending, identifying application complexity and duplicated checks as key hurdles. The regulator outlined three initiatives targeting open finance, credit reform and digital verification.
Microbusinesses face duplicated checks and collateral gaps
The Financial Conduct Authority (FCA) found that regulation is not a major barrier for small and medium-sized enterprise (SME) access to finance, with challenges largely driven by market dynamics and information gaps.
Difficulties are concentrated among microbusinesses, which represent 95.5 percent of all UK SMEs.
These smaller firms frequently encounter complex application processes, duplicated checks, limited awareness of financing options, and strict collateral requirements that disadvantage businesses holding mostly intangible assets.
FCA regulation directly covers only business lending of £25,000 or less to sole traders and small partnerships under consumer credit rules.
Three initiatives to reduce lending friction
To reduce market friction, the FCA is focusing on three key initiatives: supporting Consumer Credit Act reform with HM Treasury, developing an open finance framework with SME lending as a priority use case, and monitoring UK Finance’s voluntary digital verification service.
“Our regulation is not a major obstacle – that does not mean the system works as well as it could,” said Graeme Reynolds, FCA director of competition.
An upcoming discussion paper will set out open finance scheme options.
Right diagnosis, slow medicine
The FCA rightly identifies data fragmentation and archaic processes rather than supervisory rules as the true lending bottleneck.
Yet voluntary verification pilots and distant legislative reforms will not resolve immediate liquidity shortfalls for microfirms.
Tangible success will ultimately hinge on commercial bank adoption of open finance tools.