Background and Summary Small and Medium Sized Business Credit Data
8.At Budget 2013 the Government announced that it would investigate options for improving access to small and medium sized business credit data. The Government further announced in the Autumn Statement that it would consult on proposals to require banks to share information on their small and medium sized business customers with other lenders through Credit Reference Agencies (CRAs).
9.When assessing the creditworthiness of small businesses with a view to making a loan an important source of information for the lender is a business’ past financial performance. This information is, however, often held by the bank that provides the business’ current account and is not widely shared. New lenders and alternative finance providers therefore do not have access to the same level of information as the bank with which the small business already has a relationship.
10.In the UK, CRAs provide the infrastructure through which lenders share credit data on a voluntary and reciprocal basis. This system generally works well - the UK receives the highest ranking available from the World Bank for depth of available credit information. However, the current system can produce barriers to entry for new lenders and alternative finance providers.
11.This is because certain data (notably current account data) is not widely shared by banks and, where it is, there is not equal access to it for alternative finance providers. This is because the data is shared within closed groups which only certain lenders have access to. This represents a considerable barrier to entry for new lenders and alternative finance providers.
12.The problem of a lack of available credit data has been highlighted by a range of informed comment on small and medium sized business access to finance. The Office of Fair Trading, the Competition Commission and the review headed by Tim Breedon (“Boosting Finance Options for Business”) have all cited a lack of information about the creditworthiness of small and medium sized businesses as a potential barrier to competition in the market for the provision of banking services (and lending in particular) to such businesses.
13.Section 4 gives the Treasury power to make regulations imposing a duty on designated banks to provide specified information about their small and medium-sized business customers to designated CRAs, and a duty on designated CRAs to provide such information to lenders, subject to the agreement of the business to which the information relates.