Financial Conduct Authority’s response to FSB’s personal guarantees super-complaint is “just not good enough"

Press Releases 5 Mar 2024

The Financial Conduct Authority (FCA) has today (5 March 2024) published its response to the super-complaint on suspected excessive use of personal guarantees by banks, raised in December by the Federation of Small Businesses (FSB).

Martin McTague, FSB’s National Chair, said:

“The FCA’s response is just not good enough. Our super-complaint outlined why there is a potentially a systemic problem when it comes to personal guarantees, and the chilling effect they have on growth and investment. For the FCA to refuse to gather evidence from regulated lenders, which would illustrate the scale of the problem affecting limited companies is illogical.

“The fact that the FCA has failed to even gather any evidence on lending to limited companies, only increases the urgency for Treasury to consider an expansion of the regulatory perimeter.

“We are not at all calling for personal guarantees to be banned – we recognise their role in lending to SMEs, but it is the excessive imposition of them which we wanted to highlight.

“Anecdotally, we hear that requesting personal guarantees is almost a blanket policy for some lenders, which cannot be right if the loan value is relatively small, and there’s no evidence that the business will struggle to repay.

“Personal guarantees sit in a twilight zone in terms of regulation, as they turn a loan to a limited company into a personal liability, yet the individual borrowers aren’t covered by consumer protections that exist for other kinds of lending.

“We strongly believe the FCA ought to have gathered data on the extent to which personal guarantees are being requested by regulated lenders, and to assess the economic damage caused as a result. Data is also needed to assess whether particular groups or types of would-be borrowers are affected by the issue more than others. Individual borrowers have very little recourse when set against the power held by the banks.

“Since sending the super-complaint, our first since being granted super-complainant status ten years ago, we have heard from numerous businesses about the negative consequences a personal guarantee has had on them.

“The FCA has committed to gather some limited data on personal guarantees over the coming months. We would now urge FCA to broaden this exercise to gather as much evidence as they can on lending to limited companies by regulated lenders, which is where the real problem lies.  

“The market is not simply going to sort this out, and our anecdotal evidence suggests there is a strong case for expanding FCA’s regulatory remit to include personal guarantees requested when lending to limited companies. We will be keen to discuss this with the Treasury in due course – whoever is in power.”

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Jo Tacon

Jo Tacon

Media & Communications Officer