Royal Commission lawyers against more SME regulation

The banking royal commission’s own lawyers have advised against extending regulations protecting consumers to cover loans to small businesses.

Barristers assisting Commissioner Kenneth Hayne QC have recommended no additional statutory obligations be imposed with respect to making loans to small businesses.

Senior counsel Michael Hodge QC said small business entrepreneurs are, by their nature, optimistic about the ability of a business to succeed.

“Any increase in regulatory requirements on banks to scrutinise the optimism of the small-business borrower must necessarily be premised on the proposition that the banks are too willing to make loans to small business,” Hodge said.

“Neither the case studies nor the work that we have done outside of the hearings suggests that this is the case.”

Hodge submitted it was not necessary or desirable to increase the obligations of banks making small business loans to be akin to or more like the responsible lending obligations imposed by the National Credit Act.

“Nevertheless, we acknowledge that this is not a view that is universally held,” he said, adding more regulation was contemplated some years ago.

The royal commission has to date received more than 630 public submissions about small and medium-size enterprises.

It received more than 75,000 documents after issuing notices to produce, then interviewed 40 individual borrowers before selecting a small number to give evidence during a two-week public hearing that ended on Friday.

Its next public hearing will focus on issues affecting Australians who live in remote and regional communities. It will include farming finance, national disaster insurance and how Aboriginal and Torres Strait Islander Australians interact with financial services providers.

The first part of the two-week hearing will be held in Brisbane from 25 June, before moving to Darwin the following week.

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