FCA Chief: Banks Must Avoid Replay of 2008 by Treating Debt-Laden Firms Fairly

The chairman of the Financial Conduct Authority (FCA) has warned banks to treat businesses struggling with debt fairly in order to avoid trust in lenders collapsing like it did back in 2008.

The head of the City watchdog, Charles Randall, told banks to expect an increase in business customers falling behind on debt repayments. He said that businesses garnering more unaffordable debt as a result of the coronavirus crisis was ‘an inescapable fact’, but that these debts need to be handled ‘quickly and fairly’.

“It must not become a drag on the recovery. Lenders and regulators, and the government and the British Business Bank as the authorities standing behind the loans, will need to apply a shared understanding of how to treat borrowers in difficulty,” Randall said.

The FCA head told lenders to prepare by scaling up their debt arrears staff, as well as investing in training. There would also need to be robust dispute resolution mechanisms in place to handle a potential increase in the number of complaints.

“We can’t allow this to become a replay of the 2008 crisis where the treatment of some small business borrowers did such serious damage to people and to trust in financial services,” Randall said.

Speaking to the Guardian, one banking executive said that he was shifting resources by October in order to handle the surge in business customers having trouble repaying their debts. October is when six-month repayment holidays will come to an end.

“We don’t want to find ourselves in the same position we did in March, where literally within 10 days, all of a sudden there was this huge tsunami of demand as the government launched what was initially the Coronavirus Business Interruption Loan Scheme, very, very, very quickly,” said the executive.

“It’s a bit like the government’s mantra of trying to get ahead of the curve. We’re just trying to do the same thing.”

Treasury figures show that £38.2bn in government-guaranteed loans have been approved by lenders to over 900,000 UK businesses since the coronavirus crisis began.

However, there are concerns that around £100bn in unsustainable debt will be on the shoulders of small and medium-sized enterprises by March of next year, creating a second wave of businesses unable to repay their loans. A third of this debt will come from government-backed loans.