New principles of lending launched for business customers
Dave Pickering describes the codes of practice for business customers that will replace the micro-enterprise provisions of the lending code.
The new Standards of Lending Practice for business customers, launched in March 2017 by the Lending Standards Board (LSB) – as part of Credit Strategy’s Credit Week, represents a positive step forward in the level of protection that is now available to small business borrowers.
The Standards set out ‘principles for lending’, which govern how firms registered with the LSB will treat their customers and, underpinning these principles, are more detailed customer outcomes and standards which clearly set out what business customers can expect from their lenders.
Working initially with firms to support and oversee the implementation of the new Standards, the LSB will then monitor and enforce the Standards. The LSB has defined a comprehensive oversight strategy which will be proportionate and risk-based, and will focus firstly on those areas, which have the largest impact on customer outcomes.
Risk assessment reviews will be completed with each registered firm over the coming months to enable the LSB to understand the arrangements those firms have in place for achieving the Standards, with a specific focus on governance and internal controls.
The outcome of the reviews will inform the level and depth of ongoing oversight for each firm, which will include outcomes testing and remote monitoring through intelligence gathering. We will also conduct wider thematic reviews on areas of high potential detriment, which will inform development of the Standards through identification of best practice.
Where we find firms are falling short, we will ensure that remedial action is taken or, in the most serious cases, the LSB’s disciplinary measures may be invoked, which could result in public censure.
While significant progress has been achieved to promote fair lending across the industry, the hard work does not stop here; in fact, this is only the beginning of a long and challenging journey whereby firms, regulators and other industry stakeholders will continue to work together to create and operate transparent, innovative processes that will ultimately aim to consistently deliver fair customer outcomes.