The City regulator has expressed concerns about the potential harm borrowers of government support schemes could face with high rates of arrears predicted.
The Financial Conduct Authority (FCA) said in its annual regulatory perimeter report that it worked closely with the government as it implemented the coronavirus business interruption loan scheme (CBILS) and bounce back loan scheme (BBLS).
The regulator said it will continue to work with the Treasury as it develops approaches to collections and recovery activities related to scheme loans.
The FCA said that forecasts of likely rates of arrears are uncertain but range from around 25 per cent to 40 per cent, according to the Office for Budget Responsibility.
The regulator added that lenders estimate that up to 70 per cent of BBLS borrowers have never borrowed before, equating to approximately 700,000 small- and medium-sized enterprises (SMEs).
Read more: A timeline of FCA oversight and job changes
“The extent of BBLS and CBILS lending, and the scale of potential harm that may arise in the future has resurfaced debate about the FCA’s perimeter on SME lending,” the FCA said in the report.
“While the FCA is not responsible for designing and operating the schemes, we are committed to ensuring that borrowers, particularly those that are vulnerable, are supported by firms in an appropriate manner…
“It is in the interest of small businesses, lenders, government and regulators alike to have the clearest possible approach to collections of these loans.”
In June, a report from the Recapitalisation Group, EY and lobby group TheCityUK found that up to £36bn worth of government-backed business loans could become toxic by March of next year.
According to the latest Treasury data, up to 20 September 1.3 million businesses accessed £38.02bn through BBLS and 66,585 firms received £15.24bn through CBILS.