Bank referral scheme

The UK government-mandated bank referral scheme (Designated Platforms) was created by the Small Business, Enterprise and Employment Act 2015 to allow the UK government to track businesses and their requests for business finance. The scheme was launched in November 2016 after more than two years of deliberation.

The bank referral scheme imposes a statutory duty on selected UK hight street banks to pass on businesses who have been unsuccessful in applying for finance to the three designated alternative finance platforms, who will then phone the business in order to refer them to alternative finance providers.

Statutory format of the referral scheme

For the referral scheme to perform as envisaged by the UK Government, the businesses affected must give formal permission to the bank to pass on their information to platforms. Business owners have expressed concern and confusion as to how the referral scheme will perform in practice.

Concerns

Concerns have centred around the high-interest rates that are charged by alternative finance providers, how confidential information will be treated by the Designated Platforms who are all small start-up businesses and the possibility of being contacted by a number of unknown companies who have had access to confidential business and financial information. Websites such as DesignatedPlatforms.com have been set up to track, rank and dicsuss how each of the platforms perform to address such concerns.

The implementation of the scheme has also been slowed down by multitude of logistical problems such as how and when a bank should refer a business to the alternative finance sector.

Businesses who have been unsuccessful in a credit application process with a bank will be asked for their permission to have their financial information passed to designated finance platforms, who can contact the business in a regulated time-frame. The three designated finance platforms selected are Funding Options, Funding Xchange and Bizfitech.

The idea of the bank referral scheme was advocated by the Liberal Democrats under Nick Clegg with the former Liberal Democrat Business Secretary, Sir Vince Cable hinting at it in March 2014. The then Chancellor of the Exchequer, George Osborne announced in August 2014 the scheme; after a five-month industry consultation. The British Business Bank (the UK's state development bank) ran the assessment process to recommend three designated finance platforms on behalf of HM Treasury.

The bank referral scheme was launched on on 1 November 2016.