"The Treasury should bring commercial lending inside the regulatory perimeter, allowing the introduction of a regulatory regime that adequately protects SMEs."
The Treasury Committee has published a report on SME Finance, which calls for commercial lending to become regulated and supports the launch of a financial services tribunal needed to help SMEs resolve disputes with lenders.
The Committee says the treatment of some SME customers has been "scandalous", arguing that a "regulatory black hole" for commercial lending to SMEs has led to numerous cases of poor treatment.
The FCA recently expanded the Financial Ombudsman Service's remit to allow greater access for SMEs, however the Committee says it is "doubtful" of the Ombudsman's readiness and warned against rushing through the FCA’s "ambitious and risky proposals".
The Committee believes that a financial services tribunal is required to handle more complex disputes.
It also noted that as lending to SMEs is outside of the FCA's regulatory perimiter, it cannot take actions against "numerous high-profile cases of poor treatment of SME customers".
The Committee said the lack of enforcement action is "a damning indictment of the regulatory regime and a sad reflection of its inadequacies", adding that the existing regulatory framework is failing SMEs.
The report said the justification for not regulating commercial lending is "feeble" and is urging rhe Treasury and the FCA to introduce a regulatory regime that protects SMEs.
Nicky Morgan MP, Chair of the Treasury Committee, said: “A regulatory black hole for commercial lending to SMEs has led to numerous cases of poor treatment of many small businesses, including the scandalous events at RBS’ GRG.
“The Treasury should bring commercial lending inside the regulatory perimeter, allowing the introduction of a regulatory regime that adequately protects SMEs.
“The FCA’s proposals to allow greater access for SMEs to the FOS are sensible. However, the FOS is under-prepared and under-resourced, so rushing through the proposals will yield little benefit.
“For many SMEs, going to court is the only option for resolving disputes that can’t be settled directly with their bank. Yet it’s widely argued that the courts offer a slow and expensive process that is out of reach for many.
“For more complex cases, which the FOS lacks the expertise to handle, a Financial Services Tribunal is required. This will provide the UK’s small businesses with access to justice and reassurance that they are not vulnerable to exploitation and mistreatment.”