Banks are set to be forced to share small business credit data, under new Government plans designed to make it easier for new challengers to enter the finance market.
The Office of Fair Trading and Competition Commission have both raised concerns about how the current system limits the number of potential sources of finance to small and medium-sized enterprises (SMEs), with the Big Four established high street banks controlling 85 per cent of the market.
Under draft proposals being put forward by the Treasury, banks will be required to share SME credit data through credit reference agencies, making it easier for alternative finance providers – including the so-called “challenger banks” which Ministers hope will bring greater choice to the market – to check out the credit-worthiness of potential business customers.
Announcing a consultation on the plans, Financial Secretary to the Treasury Sajid Javid said: “The Government is determined to build a banking system that supports Britain’s economy and its small and medium-sized businesses.
“The best way to deliver this is to increase competition in the sector and remove the barriers to new sources of finance for SMEs. Requiring banks to share data is an important part of creating a more level playing field that will enable more providers to enter the market.”
The Treasury believes that improving access to SME credit data should improve the cost and quality of services offered, by encouraging greater competition and innovation in the market.
SMEs account for over half of private sector employment and nearly half of all private sector turnover, but their growth can be hampered by difficulties in accessing finance at attractive rates.
All those affected by the policy proposals are invited to contribute to the consultation, which runs until February 17, with legislation expected in the next session of Parliament, which is expected to start in May.