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Credit information and business platforms

30 Nov 2015

As mentioned in our June 2015 e-bulletin, the Small Business, Employment and Enterprise Act 2015 is being brought into force gradually. One of the aims of the Act is to improve lending to small and medium sized enterprises (SMEs).

Credit Information

Section 4 of the Act will require banks to provide data about their SME customers to designated credit reference agencies (CRAs). CRAs will then be able to use this information to shape their credit ratings and introduce new metrics, which will enable alternative lenders to build their own innovative and sophisticated credit models.

Business Platforms

Section 5 of the Act will require designated banks to refer customers they reject for finance to designated finance platforms. The relevant banks will be required to share information with those platforms where those customers agree. The UK Government consider that around 50% of SMEs get rejected for finance from banks and the reason is often simply that the bank has reached their limit of lending to that particular business sector or region.

Finance platforms will give those businesses more options to find the most appropriate form of finance for their business needs. To ensure SMEs whose information is held by designated finance platforms will have the same level of protection under the Financial Ombudsman Service as they do when borrowing from a bank, on 1 October 2015 Section 20 of the Act came into force.

This requires the Financial Conduct Authority, Prudential Regulation Authority and Bank of England to place a duty on the Independent Complaints Commissioner to produce an annual report on its investigations under the complaints scheme, including any recommendations for how the regulators’ complaints handling procedures could be improved.

The Regulations

The draft regulations to bring sections 4 and 5 into force have now been published (The Small and Medium Sized Businesses (Credit Information) Regulations 2015 and The Small and Medium Sized Business (Finance Platforms) Regulations 2015). They are being considered by Parliament. They contain various provisions to provide SMEs with confidence as to how their data will be used and to ensure that the necessary protections are in place to safeguard the quality of that data.

The Government will designate the banks, CRAs and finance platforms to which the regulations will apply. They have already announced that they intend to designate the Royal Bank of Scotland, Lloyds, Barclays, Santander, HSBC, Allied Irish Bank, Bank of Ireland and Danske Bank.

They have not yet announced which CRAs and finance platforms will be designated. The British Business Bank is currently undertaking a due diligence process on CRAs and finance platforms that have expressed an interest in being designated.

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