Ever since the eruption of the 2008 Financial Crisis there has been a seemingly never-ending series of revelations about the way the big banks have treated their SME customers.
Perhaps the most high-profile of these has been RBS (Royal Bank of Scotland) and the devastation it has allegedly wreaked on approximately 16,000 small businesses through GRG, its so-called restructuring division.
Its behaviour was first highlighted in 2013 by the Government’s then business advisor Lawrence Tomlinson, suggesting that GRG applied higher interest rates, extorted high interest rate swaps, pressured customers to sell assets to repay loans, took equity stakes in businesses and pushed them into administration and in some instances bought their former client from their appointed administrator.
Eventually, after considerable lobbying, the situation was investigated by the Financial Conduct Authority (FCA), which published a summary of its findings earlier this year, although it took pressure from the Treasury Select Committee to get it published in full. RBS had a lot of dirty laundry that they wanted to hide from their clients.
However, RBS was only the most high-profile of such scandals, with HBOS, since acquired by Lloyds, also being exposed for its treatment of SMEs. HBOS Reading between 2003 and 2007, referred distressed clients to Quayside Corporate Services, a consultancy that in collusion with the bank plundered the clients’ assets. In this case, six people including bank managers have been jailed for fraud.
Lloyds seems to have done a good job with affected clients, either settling claims or at least managing its PR. RBS, however, has been publicly criticised for its poor progress in compensating the small business owners mistreated by GRG.
The UK’s future economy will depend on SMEs being able to trust their High Street Banks
It should be no surprise, therefore, in the light of such scandals and given the regular reports of the big banks’ inadequate support for their clients in difficulties and their lack of lending to SMEs, that trust among small firms in banks has been undermined and has resulted in SMEs feeling exploited.
Nor should it be surprising that many SMEs are not seeking finance from banks, and if they are seeking finance they are turning to alternative finance providers to fund their growth plans.
Indeed, the FCA’s report into GRG recommended that the turnaround units in all banks should be reviewed, as well as how banks interact with insolvency practitioners who generally act as their advisers when dealing with clients in difficulties. It also recommended enforceable standards of conduct for turnaround units.
There have been calls from the All Parliamentary Group on Fair Business Banking (APPG) for tougher action to protect SMEs from bullying by banks.
The Treasury Select Committee has also launched an inquiry into the whole issue of finance for SMEs, which will consider banks’ duties when dealing with SMEs as well as avenues for dispute resolution and redress.
It has taken 10 years to get to this point. How many more years will it take before SMEs, the backbone of the UK economy, see effective, concrete action? And how many more for them to trust their bank?
Given the UK economy’s reliance on SMEs, when will banks support them and treat them fairly?