Banks fear they are at risk of a future assault from regulators over emergency coronavirus loans because a change in City rules has still not been signed off.
The industry was promised that lending rules would be relaxed when the taxpayer-backed Bounce Back Loans Scheme launched almost two weeks ago to help the smallest firms borrow money. Banks were concerned that otherwise, they might later be accused of handing out cash irresponsibly.
But the tweaks have still not been approved by the Financial Conduct Authority watchdog (FCA) – and lenders are afraid they could face action over more than 300,000 loans worth more than £8bn handed out so far through the scheme.
Stephen Jones, who runs bank lobby group UK Finance, said: “The FCA needs to recognise the code, to make sure that it is a code from a regulators’ perspective, but it has not yet done that. The law hasn’t been changed.
“Obviously that’s a risk, it’s one of those things left open.”
The Bounce Back programme has a fast application, doles out up to £50,000 a time and any losses which banks suffer from borrowers who do not pay them back are covered by the taxpayer.
Rules governing the scheme were not agreed until 9pm the night before it launched as banks wanted to ensure they couldn’t be accused of breaching strict lending rules in future.
In an attempt to soothe concerns, the FCA earlier this month wrote to the Financial Ombudsman Service – which rules on compensation claims – to say that the “usual regulatory regime” will not apply for future complaints linked to the Bounce Back programme.
Chancellor Rishi Sunak has said applications for the loans can be done “in the time it takes to have lunch”.
But sources warned that Natwest owner Royal Bank of Scotland, the UK’s biggest small business lender, has been forced to review around 20pc of applications. These were from companies claiming more than once, or had been flagged as possible fraud.
Meanwhile the government said that a scheme to support the self-employed was used by 1.1 million people to claim more than £3.1bn within two days of launching.
An FCA spokesperson said: “We have recognised the LSB’s Standards of Lending Practice for business customers in relation to unregulated activities. We have had preliminary discussions with the LSB, but have not yet been asked to recognise the updated LSB Standards document.
“We will continue to work closely with all interested parties on the effective operation of BBLS.”