Response to discussion Paper and Call for Evidence on SMEs and the SME Supporting Factor

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Q6: Do you agree with the proposed measures of SME riskiness? Yes/No. Are some of these measures more relevant than others? Yes/No.

2.1 We believe that banks may be developing creditworthiness criteria which goes beyond the viability assessments as outlined in section 4.3.
2.2 Therefore the NPA supports the UK’s Competition and Markets Authority (CMA) provisional decision for a market investigation reference as we are concerned that perceived changes in banking practices is leading to a deleterious impact for a range of SMEs.
2.3 As a consequence, access to loan capital could be seen as being restricted to a significant number of SMEs as access to business current accounts are being restricted.
2.4 The focus of the NPA relates to the trend of banks to withdraw current account facilities to pawnbroking businesses – thereby reducing an alternative credit option for SMEs who have spoken of their own difficulties in accessing credit from the banks.
2.5 This is negatively impacting upon a key sector of the financial services industry that is very well and tightly regulated. Virtually no complaints are upheld against the industry according to the UK’s Financial Services Ombudsman - with thousands of customers utilising the services of pawnbrokers to manage short term cashflow issues on a regular or occasional basis.
2.6 The National Pawnbrokers Association has found that the withholding of current account facilities is affecting businesses with – and without – money transfer services with the implications this can have on jobs and livelihoods. We are aware that occasionally the fact that some of our members are engaged in money transfer services may be a factor in withholding current account facilities because of money laundering concerns.
2.7 However, we do not consider it acceptable or reasonable that those pawnbroking services who work as agents for companies, such as Western Union, should be penalised as businesses rightly have to follow rigorous money laundering procedures and a compliance fee has to be paid each month.
2.8 We remain concerned that firms who have been operational for many years without any fault being attached to their businesses are seeing their current accounts being withdrawn with only 90 days’ notice – leaving very little time for sourcing new accounts and, thereby, threatening the viability of the businesses concerned. We also express our dissatisfaction that when current accounts are withdrawn, no reasons are offered despite the endeavours of our members to ascertain why these unexpected decisions had been made.
2.9 We are concerned that:
• Pawnbrokers and their staff are having their livelihoods put at risk as banks are withdrawing or withholding access to current account facilities;
• This trend is hindering a financial services product that is trusted by thousands of customers each and every week;
• It is causing problems in a sector where virtually no complaints have been upheld due to the open, friendly, consumer driven approach which the industry has adopted;
• It is acting as a barrier to entry to new businesses trying to obtain a current account in order to trade;
• The denial of current account facilities helps to engender an anti-competitive environment.
The National Pawnbrokers Association is willing to enter into constructive dialogue with the EBA and other partners in order for a positive way forward to be found for all concerned. Critically, it is vital to find a way forward so that the services provided can continue for thousands of consumers across the country and the viability of financially sound SMEs can continue.

Q7: Are other aspects relevant in your assessment of the creditworthiness/riskiness of potential SME borrowers? Yes/No. If yes, please provide a list of those aspects and explain how you measure SME riskiness.

As the survey data from NPA members as referenced to in Annex A of this submission highlights, there is evidence to suggest SMEs with a range of different profiles and who have been established in business for many years are now experiencing difficulties in accessing current accounts.
3.2 Therefore the NPA supports the interim findings of the UK’s Competition and Markets Authority (CMA) that there are supply side issues that is limiting access to business current accounts (BCAs). Whilst we recognise there will always be a case by case analysis to be considered as to how decisions by banks are reached to ascertain whether a business should gain a BCA, we have discerned a trend that seems to echo a general position being adopted by a number of banks towards pawnbroking and money service businesses.
3.3 Our concern is that such a trend may be counter intuitive in terms of developing and maintaining a diverse and regulated consumer credit marketplace. It is in the interests of consumers to be able to shop around and make informed choices as to the best consumer credit options available for them. Restricting that choice to banks by limiting access to BCAs for money service businesses and pawnbroking firms would, we suggest, raise potential competition concerns which is worthy of further investigation.
3.4 This trend, upon an initial analysis, does not seem predicated upon the characteristics of individual firms or how well or not they are operating. The regulatory framework which the pawnbroking sector rightly has to operate within also does not seem to have been fully considered when business current account decisions are being made.
3.5 Therefore, if a blanket approach has been adopted amongst a core group of banks which is sending market signals regarding the sector to other banking participants, then this may indicate an unintentional restriction of consumer credit competition. We do believe the CMA’s provisional analysis confirms trends as evidenced by survey work undertaken by the National Pawnbrokers Association, amongst other evidence presented by other SME groups.
3.6 This would lead us to conclude that there does seem to be a prima facie case for the EBA to undertake a wider analysis and consideration of the issues facing SMEs and the forms of risk assessments currently being undertaken by banks.

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National Pawnbrokers Association