Welcome to the UKGI weekly regulation update service for Aviva ABC brokers

Context

The Financial Conduct Authority (FCA) has committed to investigate the use of personal guarantees by lenders to support loans to certain small businesses. The steps come in response to a super complaint from the Federation of Small Businesses (FSB).  The FSB submitted the super-complaint to the FCA on 8 December 2023, and it was the first super-complaint the FCA has validly received since the super-complaint regime was applied to the FCA in 2013.  The primary concern of FSB is that a ‘growing demand for personal guarantees (PGs) by lenders has a detrimental impact on small businesses.’  This may be of interest to all small business owners.

Key points to note and next actions

• The FCA considered that the FSB provided enough information to allow it to investigate their concerns further, particularly whether this is or appears to be significantly damaging to consumers. This was helped by engagement with several stakeholders. 
• As a result of the investigation of the complaint, the FCA will investigate the use of personal guarantees in certain small business lending to reflects its commitment to do what it can to support small businesses within its defined remit.
• If the FCA’s work identifies relevant information, it will share these with appropriate government departments – in particular the Treasury as it considers reforming the Consumer Credit Act.
• The FCA will:
  • collect data (from April-June 2024) to understand the number of personal guarantees in place for sole traders and small partnerships borrowing less than £25,000;
  • review a sample of firms’ policies and procedures to understand when personal guarantees are required for loans that come under the FCA’s regulation;
  • work with the Financial Ombudsman Service (FOS) to monitor the levels of complaints about this issue; and
  • consider whether lenders need further guidance on applying the FCA’s rules and guidance within the Consumer Credit Sourcebook to situations where a personal guarantee is in place. If required, the FCA will consult on and publish guidance in the normal manner.
• The FCA is responding to parts of the FSB’s concerns under the super-complaint and has set out how it proposes to deal with the matters raised in the complaint. It also explains where it has decided to take any action, what that action is, and the reasons for its decision.
• The FCA’s response is split, essentially, into two parts; the first addresses lending which falls within its regulatory perimeter and is in scope of the super-complaint mechanism, and the second addresses lending outside the FCA perimeter and outside the scope of the super complaint process.