The FSA has reviewed its earlier plans for the regulatory status of business loans, proposing a “lighter touch” regime for lower risk business loans.
The regulator says in its latest consultation paper 146, that contracts for a limited term of twelve months or more and contracts for a limited amount, suggested as £10,000, should be subject to less regulation than residential mortgage contracts.
Since only a small number of firms offer advice on business loans, the FSA says it would be disproportionate to impose a full training and competence regime in relation to the advised sale of business loans. It says only around 5% of secured lending by firms are actually regulated mortgage contracts.
The FSA say their approach has been influenced by responses to earlier consultations from the British Bankers Association and a number of unnamed lenders who helped identify the practical differences between business and standard mortgage lending.
Following additional research into industry standards last autumn the regulator says it found that first charge loans make up only a small fraction of total business lending, while securities for business lending were generally second charges and therefore outside the FSA regime. The FSA also found that small and medium sized enterprises are concerned by the impact of regulation on their access to finance.