The LSB has published the outcomes of its review of the Standards of Lending Practice for business customers (‘the business Standards’), identifying new opportunities to strengthen customer protections with practical guidance for banks and lenders.
Following an industry-wide consultation, and drawing on its own compliance and research findings, the LSB will enhance its guidance on digital journeys and how SMEs apply for or access financial products online. It will also build upon its industry-leading financial inclusion work by helping banks and lenders improve the processes and procedures they have in place to support businesses and entrepreneurs with specific or unique needs.
The LSB’s business Standards set the benchmark for best practice in lending to UK small- and medium-sized enterprises (SMEs) with a turnover of up to £25mn, and provide the only protections of their kind across the lifecycle of lending products. The Standards are outcomes-focused, are formally recognised by the Financial Conduct Authority, and apply to approximately £120bn of UK business lending.
Overall, the consultation found the Standards continue to provide a good level of protection for SMEs, and identified areas of further work for the LSB to take forward, including:
- Developing further guidance to support firms’ application of the business Standards across digital channels so that business customers can receive the appropriate support regardless of how they access financial services.
- Exploring how the Standards and accompanying guidance can be updated to support firms offering sustainable products and services, particularly as the regulatory approach to green finance continues to evolve.
- Enhancing guidance on personal guarantees, having identified isolated instances where processes for reviewing guarantees could be working more effectively to ensure lenders’ information remains current, particularly where lending is repaid or there are changes at director level. Further guidance on declined applications is also planned.
- Launching guidance for lenders to promote inclusion, ensuring they consider a broad range of SMEs’ circumstances and needs throughout the product design and approval stages – helping to create products and services that work well for all.
- Carrying out exploratory work to assess how the business Standards could be extended to a wider range of products and sectors.
Laura Mahoney, the LSB’s Head of Policy and Legal, says: “SMEs are the backbone of the UK economy so it’s vital that they have the same access to fair outcomes when using financial products that consumers enjoy. The LSB’s pioneering business Standards play a key role in ensuring this happens and protecting SMEs from harm.
“The financial services industry is dynamic and constantly evolving, so keeping our Standards under review is critical to ensuring they continue to uphold our commitment to fairness and excellence in customer outcomes for businesses. This consultation evaluated emerging areas in business lending, such as the use of digital channels to deliver lending products and green finance, to ensure the Standards reflect, and are responsive to the changing economic and business environment. We’re also building on our groundbreaking work on financial inclusion, to make sure businesses get the support they need regardless of their owners’ backgrounds or specific needs.
“Our review, as well as our work over the past 12 months, has identified a number of barriers that businesses face when accessing finance – whether it’s their ability to access sustainable finance, or the challenges that ethnic minority-owned businesses can encounter when looking for new lending. We look forward to engaging with lenders and the business community on lowering these barriers and ensuring the business Standards are fit for the future – and can continue to support SMEs as they support the economy.”
Following the consultation, the LSB will also hold regular discussion forums for registered firms and industry stakeholders to discuss emerging areas for SMEs, regulatory developments, and the impact of the Standards – fostering industry-wide collaboration in business lending.
This consultation was launched in June 2023 as part of the LSB’s regular cycle of reviews. The LSB consulted with registered firms and wider industry stakeholders to understand whether the business Standards continue to set the appropriate framework of protections.
Read the full consultation response here.