New competition watchdog set to investigate small business lending
Regulator's first job will be full-scale inquiry into banks amid fall in funding to SMEs
The £170bn small business lending market is to be the first major investigation of the new competition regulator, the Competition and Markets Authority.
The Office of Fair Trading began a study of the sector last year which is understood to have concluded that a full-scale inquiry is required by the CMA, which is taking over as from the Competition Commision and the OFT next month. The announcement could come as soon as today or early next week.
It comes against a background of huge controversy. The Business Secretary, Vince Cable, last night described the failure of the government-backed Funding for Lending Scheme to get finance to small firms as "utterly perverse". Figures from the Bank of England showed that lending to businesses through the scheme fell by £1.3bn between the second and fourth quarters of last year at the same time as a surge in mortgage lending risked fuelling what Mr Cable described as "a house price boom in London and the South-east".
"I am confident that refocusing the Funding for Lending Scheme on to business lending, and the measures we are taking via increased competition and business bank funding will bear fruit," he told the annual Mansion House Trade and Industry dinner.
The Treasury Select Committee has also launched an investigation of its own and has called for evidence to be submitted from small businesses.
Banks have been braced for a move from the CMA for some time now. The OFT's study has already uncovered instances where small firms were ordered to take out current accounts if they wanted loans, in clear breach of promises given by the industry in 2002. Royal Bank of Scotland and Lloyds account for a combined 50 per cent of small business accounts.
The OFT gave nine banks in the market two weeks to submit material on how they were meeting their obligations, plus on any training given to staff, and said it was considering enforcement action.
Meanwhile, the Financial Conduct Authority has launched an investigation into Royal Bank of Scotland's Global Reconstruction Group. GRG was accused of forcing viable businesses into bankruptcy to turn a profit for the bank in an incendiary report penned by the government adviser Lawrence Tomlinson, "entrepreneur in residence" in Mr Cable's department.
RBS's own report, written by the former Bank of England deputy governor, Sir Andrew Large, found widespread failings.
Banks are already in the throes of paying hundreds of millions of pounds in compensation to firms that were sold "interest rate" swap products – a type of derivative– which left many facing huge bills when interest rates unexpectedly fell sharply as a result of the financial crisis.
A spokesman for the OFT yesterday declined to comment on the report's publication, saying that the regulator had given "no update" since December.
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