FCA Finds No Major Regulatory Barrier to SME Finance but Flags Next Steps on Checks, CCA, and Open F

Key Takeaways

• The FCA's Feedback Statement FS26/2 concludes that FCA regulation is not a major barrier to SME access to finance, though it identifies frictions in duplicated customer checks, Consumer Credit Act (CCA) requirements, and broker incentives.
• The FCA will focus on three workstreams: digital verification, proportionate CCA reform, and open finance.
• Compliance teams at lenders, brokers, and fintechs should prepare for changes affecting onboarding, regulated lending, and data sharing.

Deep Dive

The FCA's Feedback Statement FS26/2 concludes that FCA regulation is not a major barrier to SME access to finance, though it identifies frictions in duplicated customer checks, Consumer Credit Act (CCA) requirements, and broker incentives. The FCA will focus on three workstreams: digital verification, proportionate CCA reform, and open finance. Compliance teams at lenders, brokers, and fintechs should prepare for changes affecting onboarding, regulated lending, and data sharing.

The three planned workstreams are:

(1) monitoring industry work, including a UK Finance voluntary digital verification service with banks, to reduce duplicated customer checks while maintaining effective financial crime controls;

(2) delivering a proportionate regime as part of CCA reform, responding to lender concerns about information and communication requirements and sanctions for technical non-compliance; and

(3) enabling open finance by prioritizing high-impact use cases, including SME lending and consumer mortgages.

The FCA did not find capital requirements to be the main constraint on SME lending, citing Bank of England research and its own analysis. It also did not pursue concerns about fund authorization or AIM obligations, and it did not assess venture capital regulation because HM Treasury is reviewing it. The text provided is truncated at the discussion of alternative lending, but it already flags that commission-based incentives for unregulated brokers may steer micro-SMEs toward high-cost lenders, and that personal guarantee requirements may discourage applications. Those points suggest potential future scrutiny of broker conduct and transparency.

No deadlines or implementation dates are set. The FCA says it will offer engagement opportunities "in due course," and the work runs alongside HMT, Bank of England/PRA (Basel 3.1 SME adjustment), and BIST initiatives, including a mandatory personal guarantee code of conduct for Growth Guarantee Scheme lenders.

Recommended actions:

(1) monitor FCA, HMT, and industry developments on CCA reform and prepare to contribute to consultations;

(2) review KYC and onboarding processes for duplication, and assess readiness to rely on digital verification without weakening AML controls;

(3) assess how declined-application communications, referral and signposting practices, and automated credit decisions affect customer outcomes, given stakeholder criticism of limited decline reasons;

(4) review broker relationships, commission structures, and transparency, especially for alternative lending referrals;

(5) review personal guarantee practices against the forthcoming Growth Guarantee Scheme code; and

(6) evaluate open finance and data sharing strategy, including data governance and consent controls.

Risk implications are moderate and mostly forward-looking. Near-term exposure is low, but CCA reform could materially change documentation, disclosure, and enforcement exposure for regulated SME lending. Firms with weak decline explanations, opaque broker incentives, or inconsistent onboarding checks may face reputational and conduct risk as policy attention on SME outcomes grows. Open finance and digital verification create opportunities for efficiency but raise data protection, financial crime, and third-party risk considerations.

Source: Financial Conduct Authority