Q2 - WHAT FURTHER STEPS AROUND SME INFORMATION COULD SUPPORT A DEEPER MARKET IN
SME AND START UP FINANCE AND A WIDER INVESTOR BASE?
The UK agrees that improving credit information would address a major weakness in the provision of
finance to SMEs and should be a priority of a Capital Markets Union.
A lack of credit information is a major structural weakness in SME financing markets. Improved
credit information makes it easier for SMEs to secure finance by allowing new finance providers to
enter the market, increasing the potential pool of investors. Therefore, improving credit information
will directly increase the flow of credit to small businesses and produce a more diverse SME
financing market by increasing competition and reducing dependency on bank lending.
There is currently a high degree of diversity in the EU in terms of what information is shared, by
who, how it is shared and who has access to it. We therefore support the excellent work of the
Commission in mapping the information that is currently available throughout the EU. Further work
should be based on the outcomes of this exercise.
The UK has a very competitive market in terms of the sharing of credit information. Credit data on
SMEs are shared by lenders of all types through private credit bureaus (credit reference agencies
(CRAs)). These private sector bureaus provide both personal and commercial credit information and
are well established and competitive. Credit bureaus collect credit information from a number of
public and proprietary sources and use this information to provide analytical and data services to
their customers.
The UK is currently undertaking a far reaching programme of domestic reforms to further improve
this market with the aim of stimulating competition in SME lending. This builds on the steps already
taken to promote competition in the UK banking market. The work has highlighted a number of
areas where improvements can be made to the availability of credit information by member states
and market participants.
Building on our own experience, we believe that Capital Markets Union should focus on improving
the information available through the reporting infrastructure in each Member State and ensuring
this information is available to all forms of finance provider to improve competition. We would
stress that due to the the varied methods of information provision, variety in providers, and
different legal systems across Member States, legislation would be technically very difficult and take
substantial time. Indeed, the main barriers can be tackled more effectively and more quickly within
member states by increasing the depth of information that is shared through that member state’s
reporting infrastructure and reviewing the rules that govern access to it, which can favour banks.
The priority should therefore be improving access to finance within member states through
agreement at an EU level on minimum standards.
We therefore think CMU should include the following policies:
1. The Commission should recommend minimum standards on credit information, to improve
data quality in all Member States and that ensure sufficient infrastructure (public or private
based) is in place for the data to be shared and accessed.
2. The Commission should recommend how this data should be shared, to ensure equal access
to the widest range of finance providers.
3. The Commission should encourage adoption of the ECB and Bank of England loan level
templates to deepen the level of data available for securitisations.
4. The Commission should explore how SME finance data can be further deepened, to establish
more robust past performance data.
5. The Commission should consider the impact of other European legislation, in particular the
General Data Protection Regulation
1. Ensure a minimum standard of SME credit information is available in each member state:
There is currently a significant difference in the level and quality of information available on SMEs
throughout the EU. The work of the Commission in mapping the availability of information is likely
to show that in a large number of member states only ‘negative’ (e.g. default) data is shared by
finance providers rather than also sharing ‘positive’ data showing payment performance and closed
credit accounts. There are also likely to be different levels of data available to different groups of
finance providers (for example banks and non-banks).
A wider set of positive and negative information is essential in providing finance providers with a full
picture of the financial health of a potential borrower. Currently, differences in data sharing mean an
SME in one country will find it harder to get a loan than one elsewhere. Unequal access to this
information also acts as a major barrier to entry to the SME finance market, preventing competition,
increasing an over-reliance on bank lending, and acting as a block to cross-border lending including
securitisation and private placement.
It is essential that all member states have arrangements in place for the sharing of this SME credit
information (for example private credit bureaus or a central credit register). We therefore support
the Commission’s work in identifying a minimum range of information that should be available.
Following this exercise, the Commission should adopt a recommendation for a minimum set of
information that should be available in all EU member states and that sufficient infrastructure is in
place (e.g. credit bureau or credit register) for that data to be shared and accessed.
The UK is firmly of the view that legislation is not appropriate. This information is currently shared
through different infrastructure in different Member States. In the UK there is a very competitive
market for the provision of credit information based on private credit bureaus. Elsewhere in Europe
member states rely on central credit registers, as will the ECB within the euro area. Both models can
be effective. However this means there are different issues in terms of privacy and data protection.
Trying to apply even minimum binding legislation across a range of public and private entities
engaged in the sharing of this data would be extremely difficult and time consuming, as would
applying binding requirements to a mix of private and governmental bodies. This would lead to
significant delays when progress could be being made by member states.
We therefore propose that the Commission should recommend a minimum set of information that
should be made available in all Member States. If not enacted, this should be included in Member
State’s country specific recommendations and the Commission should monitor progress closely as
part of this process.
To enhance the operation of the SME credit data market, Member States might also consider
whether they want to implement a mandatory data sharing regime. In the UK we have legislated to
require sharing of SME credit information (with agreement) by the major banks based on a market
share test and is designed to be proportionate in its impact. Where a Member State decided
mandatory lending by finance providers would be beneficial, the Member State is best placed to
make the judgment as to what lenders this applies to.
2. Ensure equal access to this data to the widest group of finance providers:
Challenger banks, asset and invoice finance providers, peer-to-peer lenders and crowdfunders all
provide important competition to the major banks in the market for SME lending. The key principle
behind the UK’s own reforms is that it is vital that within each Member State there is equal access to
credit information for all finance providers, to prevent barriers to entry in the SME lending market and
move away from an over-reliance on bank funding
The Commission should adopt a recommendation that each Member State ensures credit information
is available to the broadest range of finance providers within the confines of domestic regulation and
legislation.
Improving the depth of information available to banks without ensuring equal access for other finance
providers would have the effect of worsening competition in SME financing markets. The UK would
not support this. The two must go in tandem.
The UK is currently taking legislation through parliament which will require banks to share (with
agreement) data on their SME customers with designated private credit bureaus. The legislation will
also require that those bureaus provide access to that data to any finance provider that has the
SMEs permission. The data will be set out in legislation but will mainly cover payment performance,
positive and negative default data on loans, business current accounts, and credit cards. It will also
cover business current account turnover data.
The policy intention is to improve the data available and open up access to the data that is shared,
ensuring a level playing field for alternative finance providers and new entrants, increasing diversity
of supply in the SME lending market.
3. Deepen and standardise the information available to investors in securitisations:
Transparency of securitisation structures has been identified as a key way to improve the resilience
of securitisations. Robust SME credit data will ensure that investors have ongoing certainty and
clarity on the assets that they are investing in. Our views on transparency in securitisation are
discussed in more detail in our response to the securitisation consultation paper on simple,
transparent and standardised securitisations
4. Explore how this information can support a more general deepening of wholesale finance for
SMEs:
Currently a lack of historical data on the performance of SME loans hampers the development of a
deeper market in SME securitisation. Wider access to loan level and performance data beyond just
those loans backing securitisations could provide additional transparency to investors, market
participants and ratings agencies, helping them develop their own credit models and risk metrics, and
rating agencies develop aggregate statistics on the performance of SME loans.
This could help develop benchmark indices of borrower, loan, and tranche performance, to assist
issuers to structuring transactions and investors in managing risk.
The Commission should convene an EU wide policy discussion on how this access could be improved
within each Member State and in accordance with the necessary legislation on data protection and
privacy.
5. Urgently assess the impact of EU legislation on the availability of credit information:
Credit registers and private credit bureaus provide a vital link in the provision of finance to SMEs. It is
therefore important to ensure that any EU legislation does not have unintended consequences on the
provision of this information. The European Parliament text for the General Data Protection
Regulation, in particular, could have significant unintended effects on the provision of this information
in the EU. This should be considered as a matter of urgency to ensure the impacts on access to finance
and the objectives of a Capital Markets Union are not undermined.
We do not consider that cross-border lending to SMEs should be the focus of policy action in the shortterm or is necessarily a realistic objective given the size of the firms involved. The priority should be
improving access to finance within member states first through minimum standards.