We note that the Financial Conduct Authority (FCA) raised in its Discussion Paper (DP) the potential for voluntary standards to play a role in harmonising the treatment of small and medium-sized enterprises (SMEs) and promoting good practice. The DP specifically referenced the BSB as a potential body in connection with this work.
The BSB agrees that the provision of banking services to SMEs is an important issue, and we welcome the FCA’s focus on it. We also agree that, as a complement to regulation, voluntary industry standards – if properly designed and targeted – can play an important role. The development of such standards would be consistent with the BSB’s overall aim of helping to raise standards of behaviour and competence in banking.
We have confined our response to the DP to those parts of it that discuss industry standards. We would note that, given the scope of our membership, our response relates only to the banking sector (rather than the wider financial services industry).
Q7 – Should we encourage the development of voluntary codes of practice in the manner discussed above? [ie, the use of voluntary industry codes to promote good practices in areas which fall outside of regulation; particularly for the smaller or least sophisticated SMEs]
In general terms, the BSB considers that voluntary standards can be appropriate and beneficial in the context of identifying good practice that goes beyond regulatory minima (or in areas that are outside the scope of regulation). The effectiveness of any standard will however depend on a number of factors. It must be measurable, clear, properly targeted, stretching and achievable; and it must be underpinned by the determination of those signing up to the standard to raise performance, a willingness to be publicly accountable for achieving it, and a collective commitment to ensuring that the standard is achieved across the sector. It is also important that any new standard does not duplicate or reinvent such satisfactory standards as may already exist, which could risk confusing customers or complicating the picture for firms.
In the context of the provision of banking products and services to SMEs, we believe there is merit in developing voluntary standards pertaining to the nature of the relationship between banks and their SME customers.
We do not believe that it would be appropriate for the BSB to develop standards on product design, or on the volume or price of lending or any other financial product or service. Voluntary standards might, however, be useful in promoting good practice in areas such as, for example:
- standards of competence (knowledge and understanding of a customer’s business model, industry and environment; product / service competence; and relating the products / service offered to the customer’s business need);
- the service received by SMEs in times of stress;
- complaints handling; and
- transparency (service provision, data, contractual provisions or restrictions).
There are, of course, a number of voluntary standards that already exist (or are being considered) with respect to the provision of financial services to SMEs, and that are overseen by a range of organisations (eg, the Lending Standards Board, the Open Bank Working Forum on API standards, the Asset Based Finance Association, the Finance and Leasing Association and the work being done by Better Business Finance to take forward the recommendations from the Business Finance Taskforce). Any new standards should be implemented in a way that avoids adding unnecessary complexity from the perspective of the customer, and should be informed by all the evidence, case studies and analysis available (including, once available, that collected by the Competition and Markets Authority in the course of its investigation into retail banking).
We would be happy to work with our member firms, other firms, SMEs and groups representing them, existing standard-setting bodies (including but not confined to those already noted), the FCA and other stakeholders, to develop a collective understanding of any or all of the following:
- how any additional targeted industry standards could help to improve the overall level of banking service provided to SMEs (and how these should be prioritised in terms of potential benefit to SME customers);
- where the simplification, extension, amendment or consolidation of existing standards could help to raise the overall level of banking services provided to SMEs, and SMEs’ understanding of what they can and should expect of their banks; and
- which body or bodies would be most appropriate to take forward which recommendations.
Mikael Down, Director of Policy and Analysis, BSB