New Central Bank Regulations for firms lending to small and medium sized enterprises from 2016
- Greater transparency around the application process required
- Lenders to provide greater protections for guarantors
- Credit Unions will come under this legislation in January 2017
On 18 December 2015, the Central Bank of Ireland published new regulations for firms lending to SMEs, with which regulated lenders (other than credit unions) must comply from 1 July 2016 or, in the case of credit unions, from 1 January 2017.
The regulations introduce specific requirements for regulated lenders, including:
- Giving SME borrowers greater transparency around the application process;
- Providing SME borrowers with reasons for declining credit, in writing, that are specific to their application;
- Providing greater protections for guarantors;
- 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
- Expanding the grounds for appeal and setting up an internal appeals panel.
Mr. Bernard Sheridan, Director of Consumer Protection, said: “The regulations aim to strengthen protections for SMEs, while also facilitating access to credit, by introducing specific requirements that regulated lenders must comply with”.
The regulations require firms to contact borrowers who are in arrears for 15 working days, in order to identify the reason why. This will allow them to assess whether the SME borrower’s circumstances are such that the requirements placed on firms for dealing with borrowers in financial difficulties should apply to that borrower.
In addition, under the regulations, borrowers will be entitled to an internal appeal of a decision made by a firm. Firms will be required to have an internal Appeals Panel for this purpose. SME borrowers in danger of being classified as not co-operating must be provided with a warning.
The SME Regulations are available here. The Central Bank has also published a feedback statement to the public consultation on the review of the SME Code (CP91).