UK Financial Conduct Authority identifies banking delays and risk assessment gaps affecting small defence businesses

The Financial Conduct Authority (FCA) has published findings showing that small and medium-sized enterprises (SMEs) in the defence sector face unnecessarily lengthy and complex banking processes, rather than widespread exclusion. Most banks consulted were open to serving these businesses, and no regulatory barrier prevents support for lawful defence activities. The review identified insufficient differentiation between customers’ risks and gaps in information and oversight that can contribute to delays. Its scope covered access to banking services, not wider access to lending or investment. Additional due diligence, repeated information requests and multiple approval stages can delay account opening, affecting businesses’ ability to secure contracts, make payments and meet contractual obligations. Firms should remove duplication, keep applicants informed about progress and likely decision times where legally permissible, and tailor checks to each business’s activities and risks. Defence businesses should not be treated as a single risk category or face blanket restrictions where a tailored approach is possible. Where reputational or environmental, social and governance considerations influence decisions, firms should define them clearly, apply them consistently and support them with appropriate governance. Some firms cannot accurately identify defence customers within broader supply chains and have limited management information on applications, servicing and closures. Firms should improve customer identification and senior management oversight, examining whether longer onboarding times or additional escalation reflect actual customer risks or shortcomings in their own processes. The FCA expects prompt action and consideration of whether similar improvements are needed in other SME sectors. It will monitor firms’ responses through supervision and intervene where necessary.