On 29 September 2020, the FCA published its second annual perimeter report.

In the perimeter report the FCA discusses its role and provides updates on the progress it has made on the issues which it discussed in last year’s report. It also sets out other areas where the FCA has made progress or where it continues to see harm to consumers and market users around the perimeter, particularly as a consequence of the COVID-19 pandemic.

In particular, the perimeter report highlights potential perimeter issues relating to:

  • Speculative illiquid securities (including speculative minibonds).
  • Pre-paid funeral plans.
  • Unregulated mortgage book purchasers.
  • Unregulated introducers.
  • Mass marketing of high risk investments to retail consumers.
  • SME lending.
  • Credit-like products.
  • Unregulated lead generators (debt advice/debt solutions).
  • Developing payment markets business models.

The content of the perimeter report will form the basis of a formal discussion with the Economic Secretary to the Treasury later this year, the outputs of which will be published, to help improve transparency around the actions the FCA is taking on the perimeter.

In terms of SME lending the perimeter report notes that:

  • SMEs are vital to the UK economy and the COVID-19 pandemic has brought significant challenges to their financial position.
  • SME lending has been a longstanding perimeter issue, as FCA regulation only covers lending of £25,000 and under to sole traders and relevant recipients of credits.
  • The current climate could expose more SMEs to unfair treatment.
  • Lenders estimate that up to 70% of borrowers under the Government’s Bounce Back Loan Scheme (BBLS) have never borrowed before and estimates of likely rates of arrears are uncertain but range from around 25% from some large lenders to 40% from the Office for Budget Responsibility.
  • While the FCA is not responsible for designing and operating the Government schemes (the BBLS and the Coronavirus Business Interruption Loan Scheme) it is committed to ensuring that borrowers, particularly those that are vulnerable, are supported by firms in an appropriate manner.
  • The FCA will continue to work with HM Treasury as it develops the approaches to collections and recovery activities relating to scheme loans.
  • The FCA has also acted to support small businesses outside the Government schemes. On 15 April 2020, the FCA wrote to the CEOs of banks and insurers, setting out its expectations in relation to lending to small businesses and insuring small businesses during the pandemic.