The EACB welcomes the opportunity to comment on the European Commission’s assessment to establish the merits and feasibility of setting up a referral scheme to require banks (and other providers of funding) to direct small and medium enterprises (whose funding application they have turned down) to providers of alternative funding. We are aware that this call for feedback stems from the European Commission’s Capital Markets Union (CMU) Action Plan.
Co-operative banks support the action plan for a CMU that provides EU citizens the wide and deep access to capital markets that is envisaged in the CMU’s goals. That said, the EACB ultimately questions the rationale of the initiative and in principle does not support the introduction of the referral scheme.
We would like to point out that credit applications of SMEs are turned down by banks because the assessment of the application shows that the SME in question is unlikely to be able to repay the loan. Interest rates offered by banks tend to be low compared to those of alternative credit services providers. Referring SMEs to those types of providers will thus not necessarily help the SME. It may help SMEs in the short term, but in the long term their financial situation may deteriorate due to the high costs of funding.
In the context of a referral scheme, banks would not be in the position to provide advice on alternative credit service providers on a case-by-case basis. They could only provide information on alternative sources of funding in generic terms, and therefore without real advantage for SMEs in general. SMEs have different funding needs and there is certainly no standardized financial product that fits all those needs, thus rendering not feasible the design of a referral scheme that would be generally useful for all their applications.
However, should the referral scheme still be implemented, we believe that the following should be ensured:
• It should not involve any legal liability for banks/referring entities related to the information given: It is important that no legal liability emerges, as banks/referring entities cannot be responsible for the conduct of alternative credit service providers and they cannot research accurately into their activities. We consider that a requirement to provide advice should not be introduced insofar as any potential liability would be stronger compared to the liability that could arise from the simple requirement to provide information; and
• It should not generate additional bureaucratic burdens for banks/referring entities: Banks/referring entities should only be required to provide a generic indication of alternative providers, for instance by inserting a generic indication in the letter of refusal. More detailed and burdensome requirements would represent a disproportionate imposition on banks/referring entities. Administrative burden should be kept as low as possible.
Contacts for more info:
Marieke van Berkel, Head of Department Retail Banking, Payments, Digitalisation & Financial Markets email@example.com
Tamara Chetcuti, Senior Adviser for Financial Markets firstname.lastname@example.org