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UK government rejects recommendations to regulate commercial lending to SMEs

The U.K. government on Jan. 11 rejected the Treasury select committee's call to enhance the regulatory perimeter to include commercial lending to small and-medium enterprises, or SMEs.

The government said there is no clear case for it to consider regulating commercial lending to SMEs and said that the financial services industry has "changed significantly" since the crisis era when most of the scandals took place. All major SME lenders have signed up to the Standards of Lending Practice, which provides guidance for best practices, the government said. Loans of less than £25,000 to even the smallest of businesses are already considered regulated consumer credit agreements, it added.

Chair of the U.K. House of Commons Treasury select committee, Nicky Morgan, responded on the same day, warning that "if the Government continues to bury its head in the sand, scandalous events...could re-occur."

She cited the example of the Royal Bank of Scotland Group PLC's Global Restructuring Group, which allegedly took "inappropriate action" to the detriment of 12,000 firms but to the bank's benefit.

Morgan said in the committee's published response that "any legislative change would attract support across the House of Commons," and that it is "disappointing that the government will not pursue" the committee's recommendations.

The government said increasing the regulatory perimeter and establishing a tribunal would require a long procedure of passing the legislation through parliament and that there are various costs associated with such an endeavor which must be considered. The government said it prefers the ombudsman approach over a tribunal.

The Financial Conduct Authority has increased the remit of the Financial Ombudsman Service and enacted The Senior Managers and Certification Regime to help combat mistreatment of SMEs but said deciding "where to draw the boundary between regulated and unregulated activities is a decision for Government and Parliament, not the FCA."