The Financial Conduct Authority is putting open finance and digital verification into its attempt to reduce friction in small-business lending after concluding that its own regulations are not a major obstacle to SMEs accessing finance.

The regulator’s review found problems elsewhere in the process, including limited awareness of financing options, complicated applications, repeated customer checks, and difficulty obtaining products suited to businesses that have few physical assets or rely heavily on intangible value.

Those pressures fall particularly heavily on microbusinesses, which the FCA says account for 95.5% of UK SMEs and are less likely than larger businesses to use external finance. Across the wider SME population, 54% are not using external finance in any capacity, while SMEs account for only 21% of the total value of UK business loans.

The FCA will now concentrate on three areas: changes following reform of the Consumer Credit Act, SME lending as an early use case for open finance, and industry work on digital verification that could reduce repeated identity and customer checks without weakening controls against financial crime.

Open finance shifts the problem towards data

Open finance extends the principle established by open banking, under which customers can authorise regulated providers to access account data through standardised systems, into a wider set of financial information and products. The FCA’s roadmap envisages using more portable financial data to make services faster and more tailored while improving competition between providers.

SME credit has been chosen as one of the first priority areas because a lender’s decision often depends on information already scattered across accounts, payment systems, accounting software, tax records, existing finance providers, and other sources. Businesses can find themselves providing similar information repeatedly as each lender conducts its own assessment and verification process.

A functioning open-finance scheme could allow more of that information to move with the customer’s permission, reducing manual document collection and giving lenders a richer view of cash flow or other financial behaviour. In principle, that may be particularly useful for a viable business that lacks property or other conventional collateral but can demonstrate its trading position through operational data.

The technical opportunity does not automatically solve the credit decision. Better information can make an application easier to assess, but lenders still decide how much risk to accept, how to price it, and whether the expected return justifies providing finance. Open finance can address information asymmetry and process duplication without necessarily changing the underlying credit appetite.

The FCA’s findings have an important boundary

The regulator’s conclusion that its rules are not a major barrier needs to be read against the part of the lending market it directly supervises. The review focused particularly on business lending of £25,000 or less to sole traders and small partnerships because that activity generally sits inside the consumer-credit perimeter.

Much lending to limited companies, business finance above £25,000, and areas of alternative lending fall outside that same perimeter. The FCA says around 60% of SMEs that sought finance during the past three years were looking for less than £25,000, making the regulated slice relevant to many smaller applications without making it representative of the entire SME-finance market.

Some obstacles identified through the review therefore cannot be removed by the FCA alone. The regulator says it has passed findings on issues outside its remit to government departments and other bodies, while wider work is underway through the Treasury, the British Business Bank, and the Bank of England.

The distinction is useful because access to finance is shaped by more than compliance costs. Interest rates, lender competition, economic conditions, business confidence, sector risk, available collateral, company accounts, and the quality of management information all affect whether businesses borrow and whether providers want to lend.

Verification is becoming financial infrastructure

The digital-verification strand tackles a narrower but persistent administrative cost. Financial institutions have to establish customer identity and carry out checks required for fraud prevention, sanctions compliance, and anti-money-laundering controls, yet businesses can encounter similar information requests repeatedly when they approach different providers.

UK Finance is supporting work on a voluntary verification service, which the FCA is monitoring to assess whether information can be reused more effectively without weakening those controls. The challenge is to create a mechanism that reduces duplicated work while retaining clear responsibility when information is wrong, outdated, compromised, or insufficient for a particular provider’s risk assessment.

That puts identity and data provenance alongside APIs as part of the infrastructure required for open finance. A lender needs to know not only that it can receive a data point, but who supplied it, whether the business authorised access, how current it is, whether it can be trusted, and what the lender is legally permitted to do with it.

The FCA’s roadmap runs through 2030, with 2026 focused on prioritising use cases and experimentation before framework design moves forward in 2027. Longer-term work from 2028 is intended to support operating schemes with common governance, standards, protections, and interoperability rather than allowing each provider to construct a separate version of open finance.

The review does not therefore create an immediate new lending route for a small company struggling to obtain finance. Instead, it narrows the regulator’s diagnosis and connects SME lending to infrastructure programmes already under development.

The resulting picture is less convenient than attributing the problem to one set of rules. The FCA has identified regulatory frictions it intends to address, but much of the difficulty lies in information, processes, product availability, lender behaviour, and the characteristics of smaller businesses themselves. Open finance and digital verification can reduce some of that administrative drag; whether more credit follows will depend on what lenders do with the clearer picture those systems are intended to provide.