Treasury Committee looks at the issue of de-banking

Earlier this month the influential Treasury Select Committee published their report into SME Finance. The Committee contains MPs from across the House of Commons, representing all major parties.

The report was commissioned to look at the recent experiences of small businesses. It was designed to consider the issue of access to finance and what else can be done to encourage business growth.

The last few years have been tough for small businesses across all industries. Rising inflation has had a severe impact on costs, and a global pandemic changed things for everyone. That said, SME firms make a substantial contribution to the UK economy which should not be undervalued.

For that reason, we cannot ignore that SMEs are struggling with narrow access to finance, in the face of these rising cost pressures and higher interest rates and are generally pessimistic about their ability to raise funds. Many report struggling to attract new investment for their businesses.

The parliamentary committee found that small firms are being put off from innovating and growing by damaging financial regulations and inadequate support from banks. We are particularly interested in the issue of de-banking.

Within the CCTA, we know that many smaller members have struggled with access to financial banking facilities. Pawnbrokers have had a particularly bad time with the issue of de-banking. Perhaps unsurprisingly, the Committee found that over 140,000 SME had their accounts closed last year.

We know that access to investment and banking services are lifelines for any business. The Committee has recommended that any small business doing legitimate work should have access to a bank account. The Committee members heard that many accounts were closed because they fell into “undesirable” sectors. Pawnbroking was included here, despite being a service that has been provided for hundreds and years and helps those individuals that struggle to access finance themselves.

As a result, the Committee is calling on the Financial Conduct Authority (FCA) to force banks to be more transparent about why decisions to de-bank businesses are taken. The FCA should also continue its work to better understand criteria for account closure.

Committee members also believe the regulator should compel firms to send them the number of business accounts they’ve closed each quarter split by reason.

The Treasury has assured the Committee that legislative changes will be introduced to crack down on the de-banking of businesses in the form of a Statutory Instrument. When questioned, the Economic Secretary Bim Afolami MP, and Treasury officials, said that the planned changes to termination rules would apply to business accounts. The plans also include extending notice periods to 90 days and having to give a clear reason for closure, except where it would be unlawful to do so. The Treasury is expected to publish regulations soon.

It is good to see the Treasury Select Committee shining a light on these issues. The CCTA will engage with Treasury officials at our regular meetings to ensure the publication of the new rules is not delayed. If members have had experience of de-banking please get in touch so we can try and ensure the new rules address the existing problems that SMEs have experienced.

Hopefully the new rules will improve the situation for small businesses across the UK and the customers they serve.