MPs sitting on the House of Commons Treasury Committee have fired a warning shot across the bows of the asset-based lending industry, raising the prospect of statute-backed regulation being introduced if lending practices are not improved.
In gathering evidence as part of its ongoing review into the lending market for SMEs, MPs sitting on the Committee questioned key industry figures about a number of practices, notably the use of termination fees and the alleged pressure placed on distressed businesses to make use of asset based lending.
The MPs made clear their feeling that the code for members of the industry body, the Asset Based Finance Association (ABFA), which came into effect on 30 June 2013, is inadequate with Andrew Tyrie, the chair of the Committee, concluding that “fundamental further reform” was needed.
While the comments of some of the Committee’s members might be seen as alarming, asset based lenders can take comfort from the fact that the Committee is some way off concluding its review of the SME lending market and formally recommending the introduction of any regulation. The long-term possibility of regulation being introduced also need not be seen as wholly negative, with lenders in other alternative lending markets, most notably peer-to-peer lending, having felt a boost to their business with the introduction of regulation bringing their activities into the lending mainstream.
To read the full account of the evidence presented to the Committee, please click here.