On 12 March 2021, the European Commission (Commission) issued a targeted consultation seeking feedback on whether there is potential for a referral scheme to help small and medium sized enterprises (SMEs) whose funding applications have been rejected by a finance provider and options for the scope, features and governance of such a possible scheme.
The background to the targeted consultation is that Article 431 of the Capital Requirements Regulation (CRR) gives the right to SMEs to ask for feedback in writing when they apply for bank credit. Such feedback is particularly important in case of a negative credit decision.
In the 2015 Capital Markets Union (CMU) Action Plan, the Commission worked closely with and endorsed an industry initiative by banking associations and SME associations to seek commitments from banks to voluntarily provide this input. The high-level principles do not include redirecting SMEs to alternative providers of finance. The feedback is usually based on why the credit was denied and less on alternative channels of financing. Also, the impact of this initiative has largely depended on the uptake by the industry.
In the September 2020 CMU Action Plan, the Commission committed to analysing by Q4 2021 the merits and feasibility of setting up a referral scheme to require banks (and other providers of funding) to direct SMEs whose funding application they have turned down to providers of alternative funding. The objective of this scheme, if implemented, will be to facilitate SMEs’ access to a wider set of funding options, including alternative funding options.
The deadline for comments on the targeted consultation is 9 April 2021.