Government rules out new regulations to stop a repeat of RBS SME debacle

Ministers are burying their heads in the sand by refusing to regulate loans to small and medium size businesses, according to Treasury Select Chair Nicky Morgan.

The former financial secretary to the Treasury launched a scathing attack on the government after it refused to back proposals from her committee intended to protect SMEs.

A report from the committee published last autumn called for more regulation to prevent a repeat of the RBS scandal, which saw allegations employees in the bank’s Global Restructuring Group were making SMEs go into liquidation to boost the firm's balance sheet.

The committee called for a specialist tribunal system to be created to handle complex disputes, but this was rejected by the government.

Its response to the report said: “The Government does not believe that there is a clear case for bringing SME lending into regulation, given the given the likelihood of such a move impacting on SMEs’ ability to access finance.

“Secondly, there is a real difference between how an ombudsman and a Tribunal make adjudications.

“A Tribunal must have a strict legal basis upon which to make a judgement. An ombudsman, by comparison, has the ability to make a judgement based on what is ‘fair and reasonable’ in the circumstances of the case.”

Morgan hit back against the government’s conclusion, and said: “The FCA [Financial Conduct Authority] must be given the powers to provide protection to SMEs now. If the Government continues to bury its head in the sand, scandalous events such as those at RBS’ GRG could re-occur.

She added: “There is cross-party support to provide enhanced protections and improved access to justice for SMEs, so it’s disappointing that the Government will not pursue our recommendations."