On 5 March 2024, the Financial Conduct Authority (FCA) published its response to the super-complaint it received from the Federation of Small Businesses (FSB) in December 2023, regarding the use of personal guarantees (PGs) by lenders to support loans to certain small businesses. In the response, the FCA committed to investigate these practices.

The super-complaint was the first the FCA has received since the super-complaint regime was applied to it in 2013. Under section 234C of the Financial Services and Markets Act 2000 (FSMA), designated consumer bodies have the right to make a ‘super-complaint’ to the FCA where they consider there is a feature or a combination of features of a market in the UK for financial services that is or appears to be significantly damaging the interests of consumers.

The FSB’s super-complaint centres on the practices of lenders, specifically the requirement for PGs to support lending to small and medium-sized enterprises (SMEs). The primary concern of the FSB is that a ‘growing demand for PGs by lenders has a detrimental impact on small businesses’. Whilst much of the lending the FSB is concerned about sits outside the FCA’s regulatory perimeter, and its ability to investigate and act is therefore restricted, the FCA confirms that it has carefully considered the concerns raised and met with other relevant stakeholders to better understand the issues.

In the report, the FCA responds to parts of the FSB’s concerns under the super-complaint process in section 234C FSMA, and sets out how it proposes to deal with the matters raised as well as the rationale for its decisions. The actions the FCA plans to take for lending that falls within the regulatory perimeter include:

  • Collecting data (during April-June 2024) from a representative group of lenders to understand the number of PGs in place as a proportion of total SME lending.
  • Reviewing a sample of firms’ policies and procedures to understand when PGs are required for loans that come under the scope of FCA regulation.
  • Working with the Financial Ombudsman Service to monitor the levels of complaints about this issue.
  • Considering whether lenders need further guidance on applying the FCA’s rules and guidance within the Consumer Credit Sourcebook to situations where a PG is in place. If required, the FCA will consult on and publish additional guidance.

The FCA also notes that if its work identifies relevant information relating to lending outside its remit, it will share this with appropriate government departments – in particular HM Treasury as it considers reforming the Consumer Credit Act.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA said, “we welcome the FSB raising these issues. We will play our part to better understand whether lenders’ practices are causing unnecessary barriers to growth and, if necessary, act to remove any within our remit.”