In December 2015 the Central Bank of Ireland published new regulations for regulated entities lending to the SME sector, to strengthen protections available to SMEs. Part of the regulations will also apply to business credit cards. Below is a summary of the new regulations.
The Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015 (the “SME Regulations”) will impose specific requirements on regulated lenders, other than credit unions, with effect from 1 July 2016 and will replace the existing Code of Conduct for Business Lending to Small and Medium Enterprises 2012 (the “SME Code”). The SME Regulations will apply to credit unions from 1 January 2017.
The SME Regulations will strengthen the protections available to SMEs, particularly micro and small enterprises and parts of the SME Regulations will also apply to business credit cards.
Instead of applying to “Smaller Enterprises” and “Small and Medium Enterprises” as defined in the SME Code, the SME Regulations distinguish between two categories of SME borrower as follows:
- Micro and small enterprises – being enterprises which:
- have less than 50 employees;
- have an annual turnover of less than or equal to €10 million; and
- have an annual balance sheet total of less than or equal to €10 million.
- Medium sized enterprises – enterprises which are not micro and small enterprises and which:
- have less than 250 employees;
- have an annual turnover of less than or equal to €50 million; and
- have an annual balance sheet total of less than or equal to €43 million.
The specific requirements that will be imposed on regulated lenders under the SME Regulations include:
- providing SME borrowers with written reasons for declining credit;
- providing better protections for guarantors;
- giving SME borrowers greater transparency around the credit application process;
- expanding the grounds of appeal and requiring lenders to establish and implement an internal appeals procedure; and
- ensuring that there are clear points of contact for any enquiries on issues relating to the SME Regulations.
The SME Regulations also set out enhanced provisions that will apply only to “Micro and Small Enterprises”.
These include requirements relating to: advertising; providing unsolicited credit; notifications for guarantors; providing cost comparison when consolidating credit facilities; contacting SME borrowers who have been in arrears for 15 working days; warning SME borrowers if they are in danger of being classified as not co-operating; and providing appropriate training on an on-going basis to staff concerned with regulated activities.
Accordingly, small and micro enterprises will be afforded more protections than medium sized enterprises under the SME Regulations.
In order to comply with SME Regulations, regulated lenders will have to have in place relevant policies, systems and procedures and carry out staff training, where appropriate, before 1 July 2016.