Context
The Financial Services Consumer Panel (FSCP)is a statutory body that represents the interests of individual and small business consumers in the development of financial services regulation in the UK. The Panel advises and challenges the FCA, with a focus on ensuring consumer interests are considered from the earliest stages of policy development. This report was commissioned by the FSCP to test the core hypothesis that there is more that could be done in the UK through regulation to improve the financial services and products available to sole traders and micro-businesses to support their growth.
Key points to note and next actions
The report is structured in three parts:
- An overview of the landscape for sole traders and micro-businesses wishing to expand and grow in the UK economy.
- An examination of the types of financial barriers these businesses face, with particular attention to barriers that fall within or adjacent to the FCA’s regulatory remit.
- A brief review of relevant international experience.
Key findings relate to:
- Personal finance reliance and persistence of personal liability.
- Access to finance has worsened over time for the smallest SMEs.
- Access to non-lending services is comparatively strong, but cashflow frictions remain.
- Barriers cluster into three recurring themes: technological; regulatory and compliance; and cultural and behavioural.
The headline recommendations are:
- Clarify how the Consumer Duty applies at the sole trader / micro business boundary.
- Outline a good “financial readiness” baseline and modernise frictions that don’t fit a digital economy.
- Assess the level of friction created by personal liability requirements (especially personal guarantees) by firms within the backdrop of the growth agenda.
- Support work already underway and accelerate consent-driven data sharing and Open Finance for SME lending.