Source · Select Committees · Public Accounts Committee
Recommendation 4
4
We are concerned that the Department is placing too much reliance on lenders to minimise...
Conclusion
We are concerned that the Department is placing too much reliance on lenders to minimise taxpayer losses without incentivising them to do so. When the Scheme launched the Department relied solely on lenders to prevent taxpayer losses by requiring them to do ‘know your customer’, and ‘anti-money laundering’ and some basic counter-fraud checks. It is also relying on lenders to recover overdue loans rather than doing so itself, as it considers commercial lenders to be the experts in this field and already follow similar recovery processes for standard commercial loans. The Scheme guarantees to cover 100% of lenders’ losses which offers limited commercial Bounce Back Loans Scheme: Follow-up 7 incentives for them to pursue borrowers for more than the minimum period under scheme rules. The Department relies on contractual, legal and regulatory obligations to ensure lenders comply with the Scheme. Evidence on the effectiveness of the lenders’ operations is slim, but there are some worrying indicators. The Bank runs a lender assurance programme to test whether lenders adhere to Scheme rules; and the commercial lending regulator wrote to lenders in July 2021 to remind them of their obligations to report fraud and put in place adequate counter-fraud resources. But none of the witnesses could tell us how much lenders are spending on this. The department now plans to create a simple dashboard of management information to improve its ability to hold lenders to account. Together this gives an unconvincing picture of how lenders are bearing down on large amounts of outstanding debt and we are not convinced that lender audits are a replacement for commercial incentives. Recommendation: The Department should, as part of its Treasury Minute response, set out how it will use legal, regulatory and contractual incentives to improve the lenders’ performance in managing the loans and the risks to the taxpayer. Furthermore, it should report to the Committee on individual lender performance
Government Response
Not Addressed
HM Government
Not Addressed
4: PAC conclusion: We are concerned that the Department is placing too much reliance on lenders to minimise taxpayer losses without incentivising them to do so. 4a: PAC recommendation: The Department should, as part of its Treasury Minute response, set out how it will use legal, regulatory and contractual incentives to improve the lenders’ performance in managing the loans and the risks to the taxpayer. 4.1 The government agrees with the Committee’s recommendation. Recommendation implemented 4.2 The ongoing management of the BBLS and associated financial risks remains one of the highest priorities for the department and the Bank. 4.3 The primary means by which the Bank assesses lenders’ compliance with the terms and conditions of the Guarantee Agreement is through its ongoing lender audit and assurance programme. This includes examining the effectiveness and adequacy of lender recovery efforts. Where issues are identified, the Bank can take remedial action, ranging from creating an action plan with the lender’s management team through to cancellation of a guarantee. Experience from the first round of audits showed it was effective in remedying identified issues and ensuring lenders took action to improve compliance under the scheme. The Bank is held to account on the effectiveness of its audit programme through its annual business plan, ensuring it is incentivised to work with lenders to improve their management of the schemes when issues are identified. 4.4 Moreover, the Bank has been sharing outputs from fraud analytics work with lenders to support their efforts to identify and recover fraudulent loans. At Spring Statement, the Bank received an additional £10.9 million to deliver further enhancements to its lender management programme. The department will continue to work with the Bank to help strengthen protections for the taxpayer as part of the ongoing management of the scheme 4.5 The Financial Conduct Authority (FCA) is working collaboratively with the Bank, the department and HM Treasury to find areas where regulatory powers and tools can add value. The FCA also has access to the Bank’s audits. For example, the FCA has worked with the Bank, the department and HM Treasury to ensure lenders continue to provide protections to borrowers in financial distress, as they are required to do in a business-as-usual environment. The FCA produced guidance on this in January 2021. The FCA have also carried out work on range of lenders assessing how SMEs are treated in the collections and recoveries process, and for some firms this has included Bounce Back Loans.