The Financial Conduct Authority (FCA) has published FS26/2: Supporting SME access to finance, setting out the findings from its review of whether regulation creates barriers for small and medium-sized enterprises (SMEs) seeking finance in the UK.
The Feedback Statement concludes that the FCA found no evidence that its regulation is a major barrier to SME access to finance. However, it identified a range of demand-side and supply-side challenges, together with specific areas of regulatory friction that could be addressed.
The FCA has identified three areas for further work: reducing duplication in customer checks while maintaining effective financial crime controls; delivering a proportionate regulatory regime through Consumer Credit Act (CCA) reform; and supporting the development of open finance, with SME lending identified as a high-impact use case.
Why is SME Access to Finance Under Scrutiny?
SMEs play a significant role in the UK economy. The FCA states that businesses with fewer than 250 employees and annual turnover below £44 million account for 60% of employment and 51% of turnover in the UK private sector.
Despite this, only 21% of the total value of UK business loans is provided to SMEs, while 54% of SMEs do not use external finance in any capacity. The FCA also cites evidence that the outstanding stock of bank lending to SMEs was 22% lower in real terms in 2025 than in 2012.
Against this background, the FCA launched its work in March 2026 to consider whether its regulatory framework was contributing to difficulties in accessing finance and whether changes could support improved outcomes and economic growth.
The review drew on 19 written responses to the FCA’s informal call for input, bilateral discussions with stakeholders and a roundtable attended by more than 40 organisations.
Understanding the Regulatory Perimeter
An important feature of FS26/2 is the scope of the FCA’s regulatory responsibility for SME lending.
The FCA’s review principally focused on business lending of £25,000 or less to sole traders and small partnerships, because this can fall within the consumer credit regulatory perimeter.
For example, the FCA explains that a £20,000 business loan made to a sole trader may fall within the consumer credit perimeter, whereas the same loan made to a limited company would not. Business lending above £25,000 would also generally fall outside this perimeter.
This distinction is significant for lenders and intermediaries. Firms need to understand not only the nature and amount of finance being provided but also the legal status of the borrower when determining whether an activity falls within the FCA’s regulatory perimeter.
The issue affects a substantial part of the SME lending market: the FCA found that around 60% of SMEs that sought finance during the previous three years sought less than £25,000 on the last occasion.
What Barriers did the FCA Identify?
Although the FCA did not find evidence that its regulation represents a major barrier to SME finance, its review identified several challenges.
SME preparedness and navigating the finance market
Some SMEs face difficulties identifying appropriate finance and preparing sufficiently robust applications. The FCA found that businesses can struggle with awareness of financing options, financial capability, application processes and understanding why applications have been declined.
The challenges vary considerably depending on the size, maturity and characteristics of a business. Micro and start-up businesses, for example, may have less financial information, collateral or trading history available to demonstrate their creditworthiness.
Risk assessment and access to suitable products
Lenders also face difficulties assessing SME credit risk, particularly where businesses have limited financial histories or significant intangible assets.
These information gaps can affect both the availability and cost of finance.
The FCA’s work on open finance could become increasingly important in addressing this issue by enabling businesses, with appropriate permissions and safeguards, to make greater use of their financial data.
Duplication in customer checks
Stakeholders identified duplicated customer checks as another source of friction.
Financial institutions are required to conduct appropriate customer due diligence and other checks to meet their financial crime obligations. However, SMEs may need to provide substantially similar information repeatedly when dealing with different providers.
The FCA intends to monitor industry work examining whether digital verification can reduce unnecessary duplication while preserving effective financial crime controls.
For regulated firms, the emphasis on maintaining effective financial crime controls is important. Streamlining customer journeys should not come at the expense of appropriate due diligence or firms’ wider financial crime responsibilities.
Consumer Credit Act Reform
The Consumer Credit Act 1974 was another area in which respondents identified regulatory friction.
The FCA reports concerns about the complexity and cost associated with CCA compliance. Rather than proposing immediate standalone changes through FS26/2, the FCA intends to address these issues through the wider programme of Consumer Credit Act reform.
The FCA’s stated objective is to deliver a proportionate regulatory regime as part of CCA reform.
Firms operating in the SME lending market should therefore monitor the CCA reform programme carefully. Changes resulting from that work could affect regulatory requirements and compliance frameworks for firms providing regulated business lending.
Open Finance and SME Lending
The third major area identified by the FCA is open finance.
The FCA intends to support the development of open finance by prioritising high-impact use cases, specifically identifying SME lending and consumer mortgages.
Greater access to relevant financial data could potentially allow lenders to develop a more comprehensive picture of an SME’s financial position, reducing information gaps and supporting credit assessments.
This forms part of the FCA’s broader 2025–2030 strategy and its commitment to unlocking open finance.
For lenders and fintech businesses, this is an area worth monitoring closely as the regulatory and commercial framework develops.
Alternative Lending and Personal Guarantees
FS26/2 also highlights issues extending beyond the three areas on which the FCA intends to focus its immediate work.
These include concerns around commission-based incentives in parts of the alternative lending market, which may influence how micro-SMEs are directed towards particular finance options.
The FCA also identified concerns that requirements for personal guarantees can potentially discourage some SMEs from applying for finance.
Some of the issues identified through the review fall outside the FCA’s remit. The regulator says it has shared relevant findings with the government and other bodies better placed to address them.
What Should Regulated Firms Consider Now?
Banks, consumer credit firms, alternative lenders, brokers and fintech businesses operating in or around the SME finance market should consider how the FCA’s findings relate to their existing arrangements.
In particular, firms should review whether they are correctly identifying lending that falls within the consumer credit regulatory perimeter; whether customer onboarding and verification processes create avoidable duplication; and whether opportunities to improve efficiency can be pursued without weakening financial crime controls.
Firms should also consider their approach to SME creditworthiness and risk assessments, intermediary and commission arrangements where relevant, and how future developments in open finance could affect their products and customer journeys.
Importantly, firms should continue monitoring the Government’s CCA reform programme and subsequent FCA consultations. FS26/2 signals the direction of travel, but detailed regulatory requirements will depend on the outcome of those separate workstreams.
How Complyport Can Help
Complyport can support banks, lenders, credit brokers, fintechs and other firms operating in the SME finance market with practical regulatory and compliance expertise, including:
- Regulatory perimeter assessments – We can review your SME lending products, borrower types and business activities to determine whether they fall within the FCA’s consumer credit regulatory perimeter and identify the permissions that may be required.
- FCA authorisation and Variation of Permission applications – We can support firms through the preparation and submission of FCA applications, including reviewing business models, regulatory permissions, governance arrangements and supporting documentation.
- Consumer credit compliance reviews – We can assess your existing policies, procedures and customer journeys against applicable FCA Handbook and Consumer Credit Act requirements and identify areas requiring improvement.
- Financial crime and customer due diligence frameworks – We can review and enhance AML, customer verification and due diligence arrangements to help firms improve onboarding efficiency while maintaining proportionate and effective financial crime controls.
- Regulatory change and compliance monitoring – We can help firms track and assess developments arising from CCA reform, open finance and other FCA initiatives, translating regulatory change into practical actions for policies, controls and compliance monitoring programmes.
Contact Complyport to discuss how developments in SME finance regulation may affect your business and book a meeting with one of our Subject Matter Experts.
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