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On 15 April 2020, the UK Financial Conduct Authority (“FCA”) published a “Dear CEO” letter sent to the leaders of UK banks on lending to small and medium-sized enterprises (“SMEs”) during the COVID-19 pandemic.
The context for the letter is the package of measures announced by the UK Government and the UK regulators to support businesses and employees during the economic disruption caused by the COVID-19 pandemic. In particular, the letter references the critical role for the banking sector in providing support to SMEs through the Coronavirus Business Interruption Loan Scheme (“CBILS”). There has been some criticism from SMEs and industry bodies regarding the low level of approvals under the CBILS and the amount of time it has taken for banks to process applications.
In its letter, the FCA notes that the activity of lending to an SME generally falls outside of its regulatory jurisdiction, but that the Senior Managers and Certification Regime (“SMCR”) defines Senior Managers' responsibilities and accountability in a way that applies to unregulated activities (such as corporate lending) conducted by a bank.
The letter sets out the FCA’s expectations of CEOs and bank boards in respect of SME lending, including the following key points:
The letter serves as important reminder that the FCA’s Principles for Businesses apply across the business of a regulated firm, even where some of the firm’s activities fall outside the regulatory perimeter. In particular, the letter highlights the importance of CEOs, Boards and relevant Senior Managers receiving timely and accurate information about a bank’s treatment of SME customers and the need to be able to demonstrate that SME customers have been treated fairly during the COVID-19 pandemic.