Client briefing: FCA feedback statement FS26/2 – Supporting SME access to finance
The FCA has reviewed SME access to finance, with CCA reform, open finance and digital verification now firmly on the agenda for lenders.
On 17 September 2026, the Financial Conduct Authority (FCA) published Feedback Statement FS26/2, ‘Supporting SME access to finance,’ alongside a press release confirming the outcome of a review launched in March 2026. The review examined whether FCA regulation creates significant barriers to small and medium-sized enterprises (SMEs) seeking finance and whether the regulatory framework could be improved. The FCA received 19 written responses to an informal call for input, held bilateral engagements with trade associations, SME representatives, intermediaries and government bodies and convened a roundtable attended by over 40 organisations.
The headline conclusion is that FCA regulation is not a major barrier to SME access to finance. However, the regulator has identified regulatory frictions and other challenges and has set out three areas of planned work: monitoring industry-led digital verification initiatives, delivering a proportionate regime through Consumer Credit Act (CCA) reform and prioritising SME lending within its emerging open finance framework. There is no formal consultation deadline attached to FS26/2 itself, but firms should note that CCA reform and the open finance discussion paper (expected early 2027) will carry their own engagement windows.
Background
The review sits within the FCA's 2025 to 2030 strategy, which commits the regulator to supporting economic growth and aligns with the Government's growth mission. SMEs account for 60% of UK private-sector employment and 51% of turnover, yet only 21% of the total value of UK business loans go to SMEs and 54% of SMEs use no external finance at all. Government estimates suggest that accelerating SME growth by one percentage point a year could add £320 billion to the UK economy by 2030. The British Business Bank has separately noted that outstanding bank lending to SMEs was 22% lower in real terms in 2025 than in 2012, raising concerns about SMEs' capacity to invest and grow.
The FCA's review deliberately focused on business lending of £25,000 or less to sole traders and small partnerships, because this activity falls within the FCA's consumer credit regulatory perimeter under the CCA. A loan of this size to a sole trader is caught by consumer credit regulation, whereas the same loan to a limited company is not. Around 60% of SMEs that sought finance in the previous three years sought less than £25,000, so this segment, while narrow in regulatory terms, is relevant to a large share of lower-value SME finance. Lending above £25,000 and most lending to limited companies, falls outside the FCA's remit and was therefore outside the scope of substantive conclusions in this review, though feedback on those areas was passed to relevant government departments. This is an important scope point: the FCA describes the £25,000 and legal-form boundary as the existing regulatory perimeter it operated within, not as a boundary it is proposing to extend or remove.
The review complements a wider programme of government and industry activity, including HM Treasury's (HMT) CCA reform, the Bank of England's work on access to finance for ‘high potential growth firms,’ the Department for Business, Innovation, Science and Trade's (BIST) ‘Backing your business’ plan and the British Business Bank's increased financial capacity of £25.6 billion announced at the Spending Review.
Key Regulatory Developments - No major regulatory barrier, but frictions identified
The FCA found no evidence that its regulation is a major barrier to SME finance. Graeme Reynolds, the FCA's Director of Competition, said: ‘Small businesses need to be able to access the finance they need at the right time to start up, grow and invest. Our regulation is not a major obstacle – that does not mean the system works as well as it could.’ The review found that challenges are often most acute for microbusinesses, which make up 95.5% of all SMEs and are the least likely to use external finance. Among micro-SMEs seeking finance in the three years to December 2025, only 17% of sole traders and 36% of micro-SMEs borrowed more than £25,000, meaning the majority of their borrowing sits within CCA-regulated territory.
Stakeholders identified four broad categories of challenge: preparedness for accessing finance and market navigation issues; challenges in assessing risk and accessing suitable products; regulatory frictions relating to duplication in customer checks and CCA requirements; and other issues including commission-based incentives in the alternative lending market and personal guarantee requirements. Regional disparities were also flagged, with London accounting for 61% of UK equity investment value and 47% of equity deals in 2024, suggesting SMEs outside London and the South East face additional structural disadvantages.
Regulatory frictions: duplication in checks and CCA compliance costs
Two specific regulatory frictions stood out. First, SMEs reported being asked to provide similar information repeatedly to brokers and multiple lenders, increasing processing time and cost and, in some cases, discouraging completion of applications. Second, lenders raised concerns that the CCA's prescriptive information and communication requirements, combined with sanctions for technical non-compliance, increase the cost and complexity of regulated SME lending and can affect the commercial viability of some products. Concerns were also raised about the scope of CCA-regulated business lending and how it interacts with the wider regulatory framework. Capital requirements were raised by some lenders, but both the Bank of England's research and the FCA's own analysis of retail bank SME lending data concluded that higher operating and impairment costs, rather than capital requirements, are the main driver of lower returns on SME lending relative to large corporate lending.
Customer journey and outcomes: what the paper does and does not say
Some early reads of FS26/2 have asked whether it signals a broader push to test SME lending journeys for fair outcomes regardless of whether the lending is CCA-regulated or to extend CCA-style protection to lending above £25,000 or to small limited companies. On a careful reading, the paper does not go that far. The FCA received feedback stretching beyond the £25,000 sole trader and partnership perimeter, including corporate lending over £25,000 and lending to limited companies, but it explicitly states it shared this feedback with relevant government departments rather than drawing conclusions on it or recommending that protections be extended to those segments.
What the paper does flag is customer journey friction more broadly: duplicated checks, poor decline reasoning, weak referral routes and notably concerns about commission-based incentives for unregulated brokers steering micro-SMEs into unsuitable, high-cost products. But the FCA is explicit that this sits outside its perimeter for now. It's been referred to government, not picked up as an FCA workstream. There is a reasonable analogy here with the commission and conflict-of-interest issues previously addressed in regulated consumer and motor finance, but the FCA has not drawn that comparison itself in FS26/2 and firms should not treat this feedback statement as a precursor to imminent rule change in the unregulated space. It is, however, a direction of travel worth monitoring closely, particularly given the FCA's recent history of scrutinising commission structures in adjacent regulated markets.
Three FCA priorities going forward
The FCA has committed to three areas of work, some already underway:
Digital verification: The FCA is monitoring a voluntary, industry-led digital verification service being developed by UK Finance with banks and building societies, intended to reduce repeated identity checks. The FCA stressed that any solution must maintain effective financial crime controls and allow firms to meet their legal and regulatory obligations and noted that its design, coverage and relevance to SME finance are still being developed.
Consumer Credit Act reform: HMT is reforming the CCA 1974 to deliver a more outcomes-based regime. The reform will repeal the CCA's prescriptive information requirements and associated sanctions and will recast certain rights, such as cancellation, withdrawal, termination and early settlement, into FCA rules, subject to consultation. Critically, key protections, including the CCA's unfair relationship provisions, will be retained. Once the relevant CCA provisions are repealed, the FCA will consult on the future Handbook regime, supported by a cost-benefit analysis and further stakeholder engagement.
Open finance: The FCA published its open finance roadmap in April 2026 and is prioritising SME lending as one of two high-impact use cases (alongside consumer mortgages) for the first open finance scheme. A discussion paper on the framework options is due in early 2027, following a June 2026 roundtable and a TechSprint in which seven firms tested open finance proof-of-concepts using synthetic SME lending data.
Issues referred outside the FCA's remit
The FCA noted that concerns about commission-based incentives steering micro-SMEs towards high-cost, short-term alternative lending products and concerns about personal guarantee requirements, largely fall outside its perimeter. These findings have been shared with relevant government departments. Separately, BIST is introducing a mandatory code of conduct for accredited lenders using the Growth Guarantee Scheme to ensure clearer and fairer communication about personal guarantees.
Implications for Firms
For consumer credit firms lending to sole traders and small partnerships, the immediate implication is one of continuity rather than change: FS26/2 does not introduce new rules and firms' existing CCA obligations remain in force in full, including information requirements and associated sanctions, until Parliament legislates for CCA reform and the FCA consults on replacement Handbook provisions. Firms should not treat this feedback statement as signalling any near-term easing of compliance obligations, nor as evidence that protections are about to extend to lending above £25,000 or to limited companies.
The developing obligation firms need to prepare for is CCA reform itself. Once HMT repeals the prescriptive information and sanctions regime, the FCA will consult on how those protections are recast into FCA rules. Firms active in sub-£25,000 lending to sole traders and small partnerships should begin scenario planning now, particularly around information and communication journeys, cancellation and withdrawal rights and early settlement processes, since these areas are explicitly earmarked for recasting. Firms should also monitor the FCA's forthcoming cost-benefit analysis and consultation, as this will determine the practical shape of the new regime.
Firms operating in adjacent, currently unregulated SME lending, including asset finance, alternative lending and broker-led channels, should treat the FCA's comments on commission-based incentives as an early signal rather than a settled position. Given the FCA's recent history of intervening in commission structures and conflicts of interest in consumer and motor finance, firms in this space would be prudent to review their own commission and introducer arrangements now, ahead of any future government or regulatory attention, rather than waiting for a formal consultation.
On open finance, lenders and brokers involved in SME finance should track the FCA's 2027 discussion paper closely, as early engagement in TechSprints and infrastructure testing may shape the eventual framework. Firms relying on manual or repeated identity and financial checks should also watch the UK Finance-led digital verification initiative, as adoption could materially change onboarding and customer due diligence processes, though the FCA has been clear that financial crime controls cannot be diluted in the process. Enforcement risk in the immediate term remains tied to existing CCA compliance, not to any of the three forward-looking initiatives, which are developmental rather than binding.
Wider Context
FS26/2 should be read alongside the FCA's wider 2025 to 2030 strategy commitment to economic growth and its parallel work on the Consumer Duty, where the FCA is separately clarifying firms' responsibilities while maintaining consumer protections. It also connects to the FCA's proposed reforms to the Alternative Investment Fund Managers regime, which will affect venture capital and private credit providers relevant to SME funding chains.
The review's findings on capital requirements draw directly on Bank of England and PRA analysis, including the PRA's SME lending adjustment designed to offset the removal of the existing Basel 3.1 SME support factor. Firms should also note the joint FCA/PRA scale-up unit, established to support financial services firms through periods of rapid growth.
Collectively, this positions CCA reform, open finance and Consumer Duty clarification as the three regulatory threads most likely to affect consumer credit lenders serving the SME market over the next 12 to 18 months, alongside a slower-moving but real risk that commission and journey practices in unregulated SME and asset finance lending attract future scrutiny.
Key Takeaways
No major barrier finding. The FCA concluded its regulation is not a major obstacle to SME finance, but acknowledged frictions, particularly for microbusinesses (95.5% of all SMEs) and firms outside London and the South East.
CCA reform is the priority workstream. HMT will repeal prescriptive information requirements and sanctions, recasting some rights into FCA rules while retaining unfair relationship protections; the FCA will consult once legislative reform completes.
No extension of scope confirmed. FS26/2 does not propose extending CCA-style protection to SME lending above £25,000 or to limited companies; feedback on those segments was referred to government, not adopted as an FCA finding.
Commission practices in unregulated lending are a watch point. Concerns about broker commission incentives steering micro-SMEs to unsuitable, high-cost products were raised but fall outside the FCA's perimeter for now; firms in asset finance and alternative lending should review their own arrangements proactively.
Open finance and digital verification remain developmental. SME lending is a priority open finance use case, with a discussion paper due in early 2027; digital verification remains industry-led and voluntary. Neither changes current obligations.
Residual uncertainty. The scope, timing and final content of CCA-derived FCA rules and whether scrutiny of commission and journey practices extends into unregulated SME and asset finance lending, remain undetermined; firms should avoid firm operational commitments until consultation papers are published.
How Auxillias Can Help
Auxillias supports lenders across the consumer credit, motor finance and asset finance sectors that lend into the SME market, including banks, alternative lenders and asset finance providers serving sole traders, partnerships and small limited companies. The team's work spans both CCA-regulated SME lending and the unregulated segments increasingly in the regulatory spotlight. Specific areas where Auxillias can assist include:
Policy and documentation review: auditing existing customer information, cancellation, withdrawal, termination and early settlement documentation now, so that firms have a clear baseline against which to measure the scale of change once these protections are recast into FCA rules and can respond efficiently when consultation papers are published.
Commission and introducer arrangement review: for asset finance providers, alternative lenders and brokers operating outside the CCA perimeter, reviewing commission structures, introducer relationships and disclosure practices against the standards already expected in regulated consumer and motor finance, to reduce exposure if government or FCA attention extends into this space.
Asset and equipment finance perimeter support: for captive and equipment finance providers lending to SMEs above £25,000 or to limited companies, advising on where lending sits relative to the CCA perimeter and on related authorisation, permission and governance questions. This includes reviewing personal guarantee documentation and communications, given the FCA's finding that guarantees are a recognised barrier where SMEs lack collateral and advising on structuring and security for asset-based and intangible-led lending, where the FCA has identified that conventional underwriting often fails to reflect the value of intellectual property and other intangible assets.
Customer journey and outcomes testing: reviewing SME lending journeys, including application requirements, decline reasoning and referral or signposting practices, against good outcomes principles, irrespective of whether the lending in question is CCA-regulated, to help firms get ahead of any broadening of expectations across the SME lending market.
Governance and board reporting: preparing senior management and boards for the compliance implications of CCA reform, open finance and adjacent regulatory risk, including drafting board papers, risk registers and gap analyses that distinguish immediate obligations from developing ones, in line with SMCR accountability expectations.
Consultation response support: helping firms engage with the FCA's future CCA and open finance consultations, including drafting evidence-based responses that reflect operational realities across consumer, motor and asset finance lending to SMEs.
Preparing for operational change
Auxillias is running consultancy half-day workshops and tailored training for firms lending to SMEs, helping teams work through the operational changes that may flow from CCA reform and wider regulatory developments. Sessions can be tailored to your business model, products and current arrangements.
To book an initial chat about the changes ahead and what they could mean for your business, please get in touch with the Auxillias team via the details here.
