U.K. Starts Audit of $69 Billion Coronavirus Loan Program

The U.K. government is starting an audit of the 52 billion pounds ($69 billion) of loans it guaranteed to help prop up businesses during the pandemic.

The state-owned British Business Bank asked auditors including some of the Big Four accountancy firms to start reviewing the Coronavirus Business Interruption Loan Scheme and the Bounce Back program that followed, according to people familiar with the matter who asked not to be named discussing private information.

The dozens of lenders to be audited include Barclays Plc and NatWest Group Plc. Though such reviews are standard practice, the massive scale of the program and the haste of its roll-out prompted an earlier-than-expected review, the people said. Lenders may face penalties if any misconduct is discovered.

“There’s no doubt that when the dust has settled, some customers will have been lent money that shouldn’t have been,” said Mark Turner, a compliance consultant at Duff & Phelps. “There are going to be some uncomfortable findings.”

“It’s standard practice for audits to be carried out on guaranteed lending schemes, and this requirement was set out in the terms” of both Bounce Back and CBILS, said UK Finance, a trade body for the banking industry.

U.K. Starts Audit of $69 Billion Coronavirus Loan Program

The government guaranteed 80% of CBILS loans, which had a maximum of 5 million pounds. If lenders made claims for CBILS loans that were given to inappropriate or ineligible borrowers or otherwise didn’t meet the terms of the program, they could end up on the hook for the full risk of the loan -- and face clawbacks, the people said.

The audit will also check whether lenders had sufficient internal controls and procedures to check for fraud and understand the accuracy of the information they received from customers.

“The British Business Bank has an ongoing program of monitoring and assurance for all of its schemes” including the pandemic response, it said. “These processes help ensure that delivery partners are complying with their commitments.”

A similar but much smaller crisis program a decade ago shows the perils of a situation where bankers are incentivized to reap fees and interest payments from unwieldy borrowers, while the government is on the hook for default risks. The post-2008 Enterprise Finance Guarantee loans delivered more than 3 billion pounds of funding, but resulted in mis-selling fines years later for NatWest -- then known as Royal Bank of Scotland Group.

©2020 Bloomberg L.P.

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