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COVID-19 – looking out for SMEs

Paul Young Paul Young

The FCA has urged lenders to monitor the treatment of small businesses in the current climate. Paul Young asks, what are the regulatory expectations on senior managers in relation to small and medium enterprises (SMEs). How can good conduct from lenders support good customer outcomes?

A new small business unit

Recognising the inherent vulnerability of SMEs, the FCA has created a specialist unit to oversee all COVID-19 activities in relation to small businesses. Historically, these organisations have struggled in crises and the regulator is keen to make sure that these vulnerable customers are treated fairly, and ensuring good conduct is upheld. Should any issues arise, the unit will co-ordinate an effective response.

Concerns over conduct

The Coronavirus Business Interruption Loan Scheme (CBILs) is one of the key financial interventions available to support small businesses. As with all these initiatives, it was rolled out extremely fast, and lenders do not necessarily have an appropriate governance framework in place yet. As such, the scheme has attracted some concerns around conduct, and regulators are placing firms under greater scrutiny.

COVID-19 initiatives – do you have a conduct framework in place?

The role of senior managers

The FCA has asked firms to designate a senior manager under the Senior Managers and Certification Regime, to hold responsibility for lending to SMEs. These activities should be in keeping with the 'Standards of Lending Practice for Business Customers'.

The CEO and the board are expected to actively monitor how the firm is managing their SME lending activities. This includes reviewing how the specified senior manager is discharging their responsibilities and demonstrating that reasonable steps have been taken to make sure they are acting appropriately. Firms should establish an effective audit trail to document SME interaction and internal oversight of the senior manager.

Read next: What’s expected of senior managers during COVID-19? >>

What to do now?

Firms should review their oversight arrangements for lending to small and medium businesses and develop an effective monitoring framework. This includes identifying appropriate personnel, establishing key performance indicators and putting management information processes in place. Conduct is a CEO and board level concern, and firms must be able to demonstrate reasonable actions to support small businesses.

Contact Paul Young or Sonia Shah for more information about how we can help.

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