(Alliance News) - Banks in the UK must not become overly aggressive in collecting debts from small and medium businesses forced to take out government-backed loans during the pandemic, the head of the financial watchdog has warned.
Nikhil Rathi, chief executive of the Financial Conduct Authority told MPs on the Treasury Select Committee that he also wants to avoid a repeat of the scandals that followed the financial crisis.
He said: "What would be important for us is the process of recoveries and collections, and the conduct: whoever is undertaking the collections that they are conducting themselves in a way that is consistent with our rules and framework."
The National Audit Office has previously warned that as much as GBP26 billion could be lost to fraud, organised crime or defaults from the loan schemes.
A recent Opinium-Cebr Business Distress Tracker survey found one in 10 British businesses believe they face a "high risk" of going bust due to the coronavirus pandemic.
Around half of businesses questioned said they also believe there is a "small risk" they will become insolvent as vast swathes of the economy remain closed.
Rathi, in reference to the Royal Bank of Scotland Global Restructuring Group scandal and HBOS Reading fraud, said any poor behaviour would be cracked down on.
He explained: "We're well aware of the history here and whether that's the RBS/GRG case or HBOS Reading case...we've made it very clear that we'd be watching conduct here very closely.
"I think the banks are also well aware that they don't want a repeat of what happened after the last financial crisis, and hopefully collaboratively, we can make sure that doesn't happen.
"We'll be monitoring it and we will obviously be receiving intelligence information directly from businesses and other bodies as well. If we are seeing activity which we believe is inconsistent with our rules we will be supervising that closely and we will intervene."
Rathi was also asked whether he would consider a central organisation to oversee the collection process, saying he "wouldn't have an objection to it".
The GRG scandal saw RBS - renamed Natwest Group PLC - offer GBP125 million in compensation to small firms which claimed the business pushed them into bankruptcy and saw their assets stripped.
Former FCA boss Andrew Bailey, now Governor of the Bank of England, said he did not have the remit to take action "even where the mistreatment of customers has been identified".
At HBOS, which was subsequently bought by Lloyds Banking Group PLC, financiers at the branch in Reading defrauded several businesses between 2003 and 2007, including one run by TV star Noel Edmonds.
Two employees and four others were jailed in 2017 for the GBP243 million loans scam. Victims claim the figure could be as high as GBP1 billion.
The bankers referred businesses to a turnaround consultancy and stacked fees on top of them, increasing debt, destroying some of the businesses according to victims.
source: PA
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