With all the focus on Brexit, it is worth reminding ourselves that the Central Bank (Supervision) Enforcement Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015 (as amended, the “Regulations”) will come into force for regulated financial service providers on Friday 1 July 2016 (save for credit unions for which the commencement date is 1 January 2017).
Reminder of Main Points
As noted in our previous briefing (available here), the Regulations apply to regulated financial service providers when providing certain credit products to SMEs operating within the State. The concept of SME has two sub-categories: (i) medium-sized enterprises and (ii) micro and small enterprises, which benefit from more extensive protections. The Regulations replace the existing SME Code,1 extending the scope of the regulatory protections available to SMEs in certain areas.
Amendment to the Regulations
The Regulations have been amended since they were published, principally to change the criteria for what size of entity constitutes an SME.2 Micro and Small enterprise: a micro and small enterprise is now defined as an enterprise which employs fewer than 50 persons and which has either or both of the following:
- an annual turnover not exceeding €10 million;
- an annual balance sheet total not exceeding €10 million.
Medium-sized enterprise: a medium-sized enterprise is defined as an enterprise which is not a micro and small enterprise, which has fewer than 250 employees and which has either or both of the following:
- an annual turnover not exceeding €50 million;
- an annual balance sheet total not exceeding €43 million.
Previously the turnover and the balance sheet tests in the definitions were cumulative, with the result that a narrower scope of enterprises were categorised as SMEs. While the above amendments bring the definitions more closely in line with the existing ones in the SME Code, it is notable that the Regulations do not, unlike the SME Code, refer to European Commission Recommendation 2003/361. Consequently, on the face of it, concepts in the Recommendation which might limit the categories of borrowers which fall within the definition of SME (including the concepts of “partner” and “linked” enterprises) cannot be relied upon.
The run-in period for all regulated financial service providers (other than credit unions) to establish systems to comply with the requirements of the Regulations is almost up. Each such provider should ensure that it has in place the required compliance framework, documentation and systems to enable it to conduct its business fully in compliance with the Regulations.