Along with the Fraud Advisory Panel and Transparency International UK, we wrote to the government on 16 June to ask them to publish the names of all those who have received bailout loans. The letter can be seen here.
Here we explain why such transparency is needed.
On 23 March the UK government announced it would provide £330 billion worth of loans and guarantees to support businesses that are struggling as a consequence of the COVID-19 pandemic.
These include:
- The Coronavirus Business Interruption Loan Scheme (CBILS) announced on 23 March which allows Small and Medium Sized Enterprises to borrow up to £5 million with an 80% government guarantee.
- The Covid Corporate Financing Facility (CCFF) administered by the Bank of England since 23 March under which the BoE buys corporate debt to aid liquidity.
- The Coronavirus Large Business Interruption Loan Scheme (CLBILS) introduced on 3 April which allows large businesses to borrow up to £200 million (up from originally £50 million) with an 80% government guarantee.
- The Future Fund which provides loans up to £5 million to innovative businesses announced on 20 April, administered by the government British Business Bank.
- The Bounce Back Loan Scheme (BBLS) announced on 27 April which allows small businesses to borrow up to £50,000 with a 100% government guarantee.
As of 20 September 2020, the amount of support provided is as follows:
| Fund | Amounts disbursed | No. of recipients |
| CBILS | £15.45 billion | 66,585 |
| CLBILS | £3.84 billion | 566 |
| Future Fund | £720 million | 711 |
| BBLS | £38.02 billion | 1,260,940 |
Transparency measures so far
From 4 June, the BoE started publishing the list of those companies receiving the CCFF on a weekly basis, alongside statistical information on the number of applications received and accepted and the amount of debt purchased.
However, with the other schemes, CBILS, BBLS, CLBILS, and the Future Fund the government announces only the number and amount of support provided. With the exception of the Future Fund which is administered directly by the government owned British Business Bank, all other loans are administered by commercial banks with lenders approved first by the British Business Bank. While UK Finance, the banking industry body, provides a few case examples on its website, there is otherwise is no transparency in relation to £38 billion of government backed loans that have been made under these schemes.
Why transparency is needed
Transparency is essential to help prevent fraud by those applying for loans and to ensure that commercial lenders are playing the role they are expected to play in administering these loans.
The loans are being made at a time that multiple regulatory requirements have been relaxed for businesses. The opportunities for economic crime are significant. This includes opportunities for fraudsters, those with previous convictions for economic crime, or unviable/zombie companies applying for loans. It also includes the misuse of loans for personal purposes or purposes that go against the spirit of the scheme. There have already been reports of such loans being used to buy luxury cars including on behalf of dormant businesses and new property.
Many of these loans may become government debt. In a recent survey by the Banking Business Resolution Service (BBRS), 43% of those who have taken out Covid-19 related loans do not expect to repay them. The fact that the loans are guaranteed by government creates a potential moral hazard, where the banks making the loans fail to report indications of fraudulent behaviour or economic crime as they know they will be bailed out by the Exchequer.
The Financial Conduct Authority (FCA) has flagged its concerns about potential for mistreatment of those receiving loans, particularly SMEs, by the commercial banks. On 15 April, the FCA wrote to lenders stating that it will use the Senior Managers Regime to “ensure that there is not a repeat of the well documented historic issues in the treatment of SMEs” following credible reports of unfair treatment by a small number of banks. In the same BBRS survey, nearly a third (29%) of respondents said they had experienced behaviour from their bank which would give them cause to lodge a complaint.
The FCA has said that its ability to take action over lender’s behaviour is limited and that commercial lending to SMEs is largely unregulated. The chair of the FCA, Charles Randell, has made clear that “we can’t allow this to become a replay of the 2008 crisis where the treatment of some small business borrowers did such serious damage to people and to trust in financial services.” The opportunity for rogue actors in the banking sector to engage in behaviour such as insider fraud or misselling of loans is significant without adequate transparency and oversight.
Transparency over who is receiving the loans will help:
- ensure public confidence in the bailouts.
- enable the public, investors, companies, law enforcement and credit reference agencies to check that the loans are going to credit worthy and respectable clients, and to pick up any potential inconsistencies or flag wrongdoing.
- enable greater scrutiny of the role of commercial lenders in a context where such loans cannot be fully regulated by the FCA.
- future efforts to recoup public funds that are fraudulently obtained.
Practice elsewhere
There is growing controversy in the US about transparency over government bailout loans and in particular the Paycheck Protection Program loans scheme for small businesses. The US Treasury Secretary has said that the details of those who have received more than $500 billion of loans which can be forgiven and in effect converted into grants, will not be released. As in the UK, the loans are made by commercial banks and then guaranteed by the Treasury. Eleven US news publications are suing for the information which has also been withheld from the independent oversight body, the Government Accountability Office.