Duncan ScottThe Lending Standards Board (LSB) has published its response to the views received on its consultation on a review of the Standards of Lending Practice (the Standards) for business customers. The review itself was originally launched in 2023, closing in early August that year, with a consultation paper and elicited the following feedback:
The impact of of economic and regulatory developments
The general view of respondents were that the Standards set an appropriate level of protection when it comes to lending including in relation to vulnerable customers and, therefore, substantive changes to the current content of the Standards was not required at this time.
It was, however, suggested by some respondents that the terminology used in the Standards might benefit from being reviewed to ensure consistency with the Consumer Duty.
The LSB response explained that the Standards need to take account of a wide variety of legislative and other influences and, therefore, are designed to have a degree of flexibility. The LSB reviews the standards regularly to ensure that relevant developments are taken into account.
Application of the Standards – thresholds
Generally, respondents considered that the fact that the Standards set out best practice for lending to business customers with a consolidated annual turnover of up to £25m, with firms given discretion to apply the Standards more flexibly for larger customers with turnovers between £6.5m and £25m remain appropriate.
The LSB intends to consider the thresholds in the course of an end-to-end review and in light of the recent FCA review of SME access to the Financial Ombudsman Service but is of the view that they presently remain appropriate.
Digital lending journeys
General feedback was that the outcomes focused approach taken in the Standards enables them to apply effectively across different distribution channels. Where changes were seen as appropriate it was suggested that these would be most effectively achieved using targeted guidance rather than changing the Standards themselves. The LSB agrees that further guidance is needed and to that end is conducting a thematic review which will consider the full customer journey from a digital perspective in relation to both personal and business customers.
New and emerging areas within the business lending landscape
Feedback in this area focussed on:
- sustainable and green finance; and
- inclusion within the business lending space.
As regards the first of these, respondents were positive about extending the Standards to include requirements on the provision of sustainability linked lending products to business customers provided that any changes take into consideration work being undertaken elsewhere, such as requirements on organisations under the Taskforce for Climate Related Financial Disclosures and the FCA’s work on greenwashing. The LSB is alive to the importance of this area and is of the view that the non-legislative nature of the Standards will enable them to be adapted to address these issues.
Broadly speaking, feedback suggested that there is still more to be done to address inclusion within the business lending space.
Extending the scope of the Standards
The Standards currently capture commercial mortgage, loan, overdraft and credit card products provided to business customers. The majority of feedback suggested that this was appropriate but that any extension could cover embedded finance products and buy-now-pay-later solutions where provided to SMEs.
Some respondents suggested particular areas where further guidance might be helpful, including:
- personal guarantees;
- declined applications; and
- business turnaround.
In response, the LSB has flagged the following areas identified in the course of its end-to-end review work in which firms need to improve:
- providing feedback to customers when declining an application;
- the effectiveness of interactions with customers showing indications of financial stress;
- record keeping to ensure that when dealing with customers, especially when in financial difficulty, all relevant detail relating to what has been agreed with the customer is captured; and
- root cause analysis of complaints and further training of customer facing employees to ensure they are better able to identify and support customers in vulnerable circumstances.