9 December 2025

(10.00 am)

Lady Hallett: Good morning, Mr Hudson. I can see and hear you. Can you see and hear me?

Mr Hudson: We can, thank you, my Lady. The first witness is Kate Nicholls.

Ms Kate Nicholls

MS KATE NICHOLLS (sworn).

Questions From Counsel to the Inquiry

Mr Hudson: Good morning, Ms Nicholls. You are, aren’t you, chair of UKHospitality?

Ms Kate Nicholls: I am, yes.

Counsel Inquiry: And you have provided to the Inquiry a witness statement with reference INQ000651747.

Ms Kate Nicholls: Yes, I have.

Counsel Inquiry: UKHospitality, as we understand it, is a body representing over 130,000 businesses in the hospitality industry and that includes pubs, restaurants, bars, venues and caterers; is that right?

Ms Kate Nicholls: That’s correct, yes.

Counsel Inquiry: In a sentence or two, if you can, could you explain to the Inquiry how you went about representing the sector during the pandemic?

Ms Kate Nicholls: Well, our role as a business representative organisation is to have regular dialogue with government throughout the year on all matters related to the sector, and we stepped that up significantly as the economy and as our sector in particular slipped into economic damage as a result of the coronavirus, and then as we went through into successive lockdowns.

So we were on daily calls with government as we went into the lockdown period, and that stabilised into fortnightly calls and weekly calls with various government departments to make sure they could understand the impact in real terms, that was both DEFRA, DCMS, the Business Department and Treasury, as well as Number 10.

Counsel Inquiry: Thank you. We will come on to consider some of those specific examples in due course.

To begin with, I want to draw attention to something you raise in your witness statement, which is the economic impact of the pandemic on the sector. And I think you state that the output of the sector was 42% lower in 2020 than 2019, and 21% lower in 2021 than 2019?

Ms Kate Nicholls: (Witness nodded).

Counsel Inquiry: And those are the figures which show the decline of the sector in absolute terms.

Ms Kate Nicholls: (Witness nodded).

Counsel Inquiry: Additionally, you’ve provided us with figures relate to the sector’s share of the UK economy which shows that the share dropped from 3% in 2019 to 2% both in 2020 and 2021.

Does that also demonstrate the decline in relative terms that was experienced by the hospitality sector?

Ms Kate Nicholls: Yes, it does. Obviously that decline was patchy during different times of those two years, but it was a sustained decline. We saw a drop-off in trade in February and March ahead of national lockdowns as a direct result of what was happening globally around Covid and the responses that were happening in the UK. Then there was partial reopening and trading with subdued levels but for some businesses they were enclosed for the entire period that Covid lasted and so you could see that relative decline both in terms of volume of transactions, value of transactions, and the economic output that they were able to manage during that period.

Counsel Inquiry: As a representative body, you represent a great number of businesses although, of course, it’s not a homogeneous industry, is it?

Ms Kate Nicholls: (No audible answer)

Counsel Inquiry: Could you perhaps highlight some of the differences experienced by different hospitality businesses during 2020? Perhaps an example would be a campsite in Northumberland and a nightclub in Liverpool city centre?

Ms Kate Nicholls: Yes, well, you’re right that the industry is not homogeneous both in terms of size of business and type of trading. However, during that intense period when we were in a series of successive national lockdowns, the whole of the sector was directly impacted in terms of its ability to trade because it relies upon people coming together in public spaces to be able to socialise. Therefore, it was first in, last out, and most directly affected.

If you take the examples that you gave, a nightclub in the city centre of Liverpool effectively was closed from the moment the Prime Minister said we should stop socialising, 16 March, and did not fully reopen again until we had lifted a lot of the restrictions around social distancing that came in in, sort of, summer of 2021. So a very protracted period where they were mandated to close and understandable to trade in open or provide any alternative mechanism.

The other example of a campsite in Northumberland, outdoor, more open-air activities. When we reopened partially with social distancing restrictions, that campsite would have still only been able to trade at best 50 to 60% of its normal output because of social distancing, but there was a growing appetite from customers when we came into summer 2020, and then again coming into summer 2021, where outdoor activities were freed up with fewer restrictions, people wanted to go back and socialise. And so for those two short periods of time, they were able to gain greater revenue than closed business in the city centres. They were the last to recover.

Counsel Inquiry: So should we maybe understand your evidence today on behalf of the hospitality sector with those nuances in mind: that it’s sometimes difficult to represent the sector as a whole, when there are these differences?

Ms Kate Nicholls: Well, we have tried our hardest to be able to give the Inquiry that sort of global macroeconomic view of the impact on the sector. And let’s not forget that these figures underline and have behind them a whole lot of human lives. They are the business owners, the business operators, the people who were employed in that sector who were also significantly impacted by the restrictions and by the economic impact and the uncertainty that was caused during that period, over and above all of the uncertainty that we all felt as citizens.

So, yes, there is nuance, there is an ability to trade, but across the sector as a whole, as a result of social distancing restrictions, there was an inability to trade at full, unlike most other economic sectors of the economy.

Counsel Inquiry: As of today, to what extent has the industry recovered from the pandemic? The reason I ask is to understand the economic scarring effect of what happened during the pandemic.

Ms Kate Nicholls: Well, I think as you can see in the evidence statement that we’ve provided to the Inquiry, we warned repeatedly throughout the pandemic that there would be persistent economic scarring.

I’ve worked in the sector for 30 years. We knew and understood the impact and the length of time it took for businesses in our sector to recover from major economic shocks.

Counsel Inquiry: Can I just ask you to slow down slightly.

Ms Kate Nicholls: Sorry.

Counsel Inquiry: Thank you.

Ms Kate Nicholls: Major economic shocks, which we had with the financial crisis, we had with 9/11, terrorist attacks, disruptions to trade, we knew that it took on average 18 months for businesses to recover footfall, volume and value, and a further 18 months to be able to recover their profitability.

In the case of the pandemic, that has taken longer than anticipated. We were talking then about three years, 36 months, from 2022. We are only just out of that period.

But obviously that was if we were going to have plain sailing as a result of coming out of those restrictions. We then went straight into war in Ukraine, an energy crisis, food price inflation, and a global disruption to supply chains and global inflation. All of that has slowed down the recovery of the tourism and hospitality sector.

There’s some significant impacts that Covid had. Never before have we had an economic intervention to physically close premises and prevent them from trading altogether. Where we were looking to recover in all of those other shock systems that we’ve been talked about, and systemic shocks, there has been an ability to trade in part.

The second impact that we had for our businesses, we saw a downturn in trade start to happen from the beginning of February, as we had the first Covid cases in the UK and as you had the global situation developing where you could see cases increasing across Europe and across Southeast Asia.

So our businesses started to see a downturn in trade. They were then – the initial response, economically, very rapidly stood up loans, but those businesses then had to take on loans and debt, and that debt scarring is what has caused the persistent economic impact.

Counsel Inquiry: We will come to discuss each of the major schemes that were launched in the spring of 2020 –

Ms Kate Nicholls: Mm. But there are businesses still paying back Covid debt, so they haven’t recovered in terms of value, volume, cash flow, balance sheet. You still have that persistent economic scarring in the hospitality sector.

Counsel Inquiry: To come to the specifics of the period, 9 March 2020, you attended a pre-budget round table for various sectors of the economy held by the Chancellor, Rishi Sunak.

Can you give us a brief summary of the nature of that meeting, and what was discussed?

Ms Kate Nicholls: Well, this is one of a series of regulator pre-budget briefings that chancellors of all complexions will have, and ministers of all complexions will have, with major sectors of the economy. At the time it was a breakfast designed to talk about entrepreneurship and how we could foster investment in the UK economy, and at the end of the 45 minutes of breakfast, I flagged the very severe concerns we had about the economic impact of the coronavirus, both being seen at that present point in time, as sales were slowing down, and people were regulating their own behaviour, and the impact we were seeing on city centre trade, footfall, and people going out.

So there was a present and real threat to the hospitality sector, at the time thought to be temporary. To his credit, the new Chancellor was very well appraised of that situation, took that on board as a matter of concern, asked for a follow-up series of responses to be able to provide that real-time information about footfall and value and volume, as he prepared for his first budget.

Counsel Inquiry: You used the word “briefing” when you described the nature of the meeting. By that, do you mean that you as part of the hospitality sector and other representatives were briefing the Chancellor or were you being brought into the fold in what was being considered to be announced as part of the 11 March budget?

Ms Kate Nicholls: We were briefing the Chancellor. During a budget process, there is a period called purdah, where there is nothing that’s released about what are the details of the budget but it is a last intervention and ability for the Chancellor to ask questions about what are the most pressing concerns for businesses and business representative groups. So we were very much providing information from our own perspective. I was the only person at that meeting to talk about Covid.

Counsel Inquiry: The Inquiry understands that after the meeting you followed up with an email to officials at the Treasury and Number 10 Downing Street, and you were highlighting the urgency of the situation for businesses, I think particularly with regard to 1 April, which you described as a crunch date when lots of bills needed to be paid.

Thinking back to 9 March, can you give us a sense of what you understood hospitality businesses on the ground to be feeling like at the time?

Ms Kate Nicholls: There was a high degree of anxiety. Again, it was slightly nuanced. Those in city centres were already starting to see a significant downturn in trade, and in London, in particular the London hotels and hospitality businesses, had seen tourism not start again, international tourism not really start again in January, after the revelation that Covid had entered or the coronavirus had entered into the global travel and tourism market.

So we were seeing on a daily basis businesses concerned about the downturn that they were seeing, concerned about the fall-off of trade in particular post February half-term that year, where we were seeing 30-40% reductions in city centre revenues, and wanting to make sure that the Treasury was appraised of that as the budget was developed.

I think at the time, there was still a sense that this impact would be temporary. I don’t think anybody in the hospitality sector at that time thought that we would go down the route of full economic lockdown, but certainly, businesses were conscious that there would be three to six months’ worth of disruption, suppressed trade, and suppressed ability to be able to manage those liabilities that they had, both to look after their teams and to pay their bills.

Counsel Inquiry: Because we’re short on time, I’m going to now hone in on some very specific issues, the first of which relates to business loans. I wonder if we could have on screen INQ000597891.

Ms Nicholls, it’s an email of 27 April 2020 from you to officials at the former Department for Business, Energy & Industrial Strategy. In it, at the third bullet point, you reflect that:

“57% of loan applications by hospitality businesses have been rejected and the remainder are still waiting for response after 2 weeks.”

The Inquiry understands this is in relation to what’s known as CBILS, Coronavirus Business Interruption Loan Scheme.

Later – in the next paragraph you write:

“[The] main reason for loan rejection was having existing capital …”

Followed by other reasons.

At the time, did you find that hospitality businesses were struggling to get loans as part of the scheme?

Ms Kate Nicholls: Yes, yes, we did. I mean, I think I would preface that comment by just saying this was stood up at very short notice, and we were putting a lot of pressure on Treasury and Business officials to be able to get access to those loans speeded up. There was a clear gap which most – a lot of our businesses fell into. There was a big credit facility for the largest companies that were stood up pre-lockdown, then there were CBILS loans, and then later there was Bounce Back Loans.

For the middle tier there was a sort of squeezed middle, I think I described it as, in meetings with the Secretary of State at the time, where they were having difficulty, and the rules around the normal funding requirements that would be eligible for access to loans that were government-backed through the Business Bank, they were using an existing scheme and it hadn’t kept pace with what was needed in the state of a national crisis, in a national economic crisis.

So, yes, we were very concerned that hospitality businesses were not going to be able to access this.

It characterised something that we found throughout the process: that at the initial start, the government was standing up very intense unprecedented economic support for the whole economy; and for those businesses that were closed, it wasn’t quite nuanced enough to meet the needs of somebody who was closed as opposed to a business that was trading.

Counsel Inquiry: We – with that in mind, that these schemes were stood up very quickly, with an intention of providing support as quickly as perhaps was humanly possible by the government, we have heard, or at least in his witness statement, a reflection from Sir Charles Roxburgh, related to managing expectations of businesses.

In essence, his point, I think, is that business expectations were high, I think as you’ve just set out, and, on reflection, the Treasury could have done better to manage expectations in how quickly that support would be forthcoming.

Do you share that reflection?

Ms Kate Nicholls: My reflection at the time was one of sheer desperation from a large number of businesses who were sliding into insolvency, and were fearful that they were going to have to lay off large swathes of their staff and were desperate to find a solution that would keep their staff employed and would allow them to fund furlough schemes.

I’m not sure that the Treasury took on board, at official level, the scale of the need that there was going to be across the economy, and also, as I say, didn’t necessarily reflect on the fact that for those businesses where they had mandated and legislated that they had to close, they could not trade, there needed to be a different triage point than for the rest of the economy.

So I think there was a management of expectations on both sides, and, you know, my best interpretation would be that businesses were trying to get access to something that was desperately needed. Treasury were doing their best, as was the Business Department, and this moved at a much faster pace than anything I have ever seen in government.

I think the expectation as well, was from ministers, particularly Rishi Sunak as Chancellor, Alok Sharma, were really keen to get support to these businesses as quickly as possible, and were trying to navigate through a system that – that wasn’t necessarily always up to the task of being able to deliver it at the pace that was needed.

Counsel Inquiry: Could I just pick up on a point that you raised there in relation to the distinct nature of the hospitality sector as a sector that was, in effect, forced to close, owing to government measures.

A summary of measures that were provided to the hospitality sector during the pandemic includes the furlough scheme. There were specific grant schemes available to the hospitality and related sectors. Of course there were loan schemes. Some businesses in the hospitality sector could benefit from additional business rates, relief, VAT reduction and deferral, the Eat Out to Help Out scheme.

Bearing in mind all of those schemes, many of which were targeted towards the hospitality sector, do you consider that the sector was adequately supported in the round across the pandemic?

Ms Kate Nicholls: I think the government stood up at very short notice an unprecedented amount of support for the hospitality sector. It was never going to be enough to cover the losses that were sustained by being closed during that period and the debts that had to be taken on, which have resulted in that persistent economic scarring, but there is no doubt that without that rapid action from the Chancellor as soon as we were going into national lockdown, particularly the furlough scheme – you know, we retained 85% of our staff – we didn’t have the business failures that we were anticipating that would happen in March.

It was not enough in the full protracted length of lockdowns to be able to sustain and maintain every job and every business, and it didn’t cover the full costs, and that’s the economic impact assessment that really needed to be done, to be carried out.

My only criticism is that as we came out of the first national lockdown, the schemes that were stood up then that were economy wide, could have done with being nuanced and adjusted to be able to be more directly focused at the businesses and sectors, particularly hospitality, where closures were still in necessary, that needed that support rather than it being a whole-economy response.

Counsel Inquiry: Looking forward, then, is perhaps one of your recommendations that more consideration is given to the impacts that a pandemic, which impacts on face-to-face contact, might have on specific sectors and tailor support schemes accordingly?

Ms Kate Nicholls: Yes, I think that that’s undoubtedly the case. I think what we need to do is to capture the lessons learned from the period where we had to stand up support very quickly. At the time, there was no hospitality minister, there was no department – team within the Business Department that looked after hospital on the high street. There were not the regular triage mechanisms that you could feed that into. We did have that in DEFRA on the food supply chain. We did have that in DCMS on tourism. We need to make sure that those systems can be stood back up very rapidly and that the lessons learned about where support might have been inadequate for businesses that were mandated to close and where social distancing had the biggest impact, those tweaks, that corporate institutional memory, needs to be captured and reflected moving forward.

One of the things that struck me at the time was that we’d gone through swine flu, flu pandemic preparedness planning. We’d gone through Foot and Mouth. We knew what the impact was on these businesses where you did have a suppressed level of trade, and there didn’t seem that institutional memory within the Civil Service of how long it took to recover and the support mechanisms that were needed for two of our big industries, tourism and hospitality.

Counsel Inquiry: Could I perhaps put a difficulty with the sectoral approach to you and see whether you can assist the Inquiry in navigating a way through it. It arises I think quite clearly from a questionnaire response that the Inquiry has received from the British Beer and Pub Association, and I’d like page 3 to go on screen, please. It’s INQ000661252.

And as it comes up, I’d like to preface the question with this: this not a zero-sum game; the government doesn’t have to provide support to one sector and not another. There are support schemes to be provided in the round, some maybe more targeted than others.

We’ve heard evidence so far that the interconnectedness of the economy, particularly in relation to supply chains, can make it very difficult to target support. And if we could zoom in on the table alone here, please, what I want to draw to your attention is the evidence the Inquiry has received from the British Beer and Pub Association. It seems to show in stark terms what a pub would receive, as it is in the hospitality sector, versus what a brewer would receive, and one may think that some brewers have an exclusive customer base of hospitality businesses. And so on one view, this looks as though targeting support towards the hospitality sector doesn’t meet the need across the economy.

Can you help us with your view on how a sectorally-targeted approach marries with the supply chain issue?

Ms Kate Nicholls: I think it is an important point that there are supply chains that are interconnected and very directly woven into businesses that were mandated to close. I think it is the mandation to close and cease business activity that needs to be taken into account, in looking at those schemes.

That table doesn’t take account of the whole-economy measures that were also available in terms of loans and support facilities that were there.

I think what you need to look at, and where it might help the Inquiry, is to make sure you had that more nuanced approach within government that looked at the supply chains that were directly and intricately linked with the businesses mandated to close, versus those that had another route to market and continued to trade.

For example, there were lots of brewers that were impacted but there were lots of brewers that could continue to supply supermarkets. My point about sector-specific support is not necessarily around the hospitality and tourism supply chains, but more that you had furlough continuing to be available for businesses that were fully operational, where people were working from home, where business – where staff did not need to be not working, and therefore, as it went on longer, things like furlough, where the government’s contribution towards it stepped down and we were required to make 15% contributions when businesses couldn’t trade and couldn’t open, during second and third national lockdowns, that’s where the nuance didn’t come through sufficiently. Because there was a whole-economy approach, and therefore businesses that were trading partially could afford a contribution, businesses that were still fully closed could not.

Counsel Inquiry: Is that more of a fairness point, ie, “My business has been forced to close, I ought to be supported by the government”, or is it an economic efficiency point? Or do you consider it to be part of both?

Ms Kate Nicholls: I think as time went on during the course of the crisis it was partly both. At the start, I had a great deal of sympathy for government, who were dealing with an unprecedented health crisis, economic crisis, social crisis, and were juggling all those plates. It is far easier to stand up a whole-economy response that can be accessed by everybody than it is to design schemes that are specific to different sectors.

We saw that when we were reopening. There was sector-specific support that is referenced here, Eat Out to Help Out, VAT reductions, you know, that was specifically targeted at those businesses that were starting to stand back up again. But the fact that we then had, after that, when we were going into third and fourth national lockdowns, tiered restrictions, lots of social distancing restrictions, that’s where the support really did need to be more nuanced: where businesses were open but not able to trade fully, not able to trade in the way they needed to, and a whole sector was operating below break even.

Counsel Inquiry: Ms Nicholls, I’ve got other questions I could ask you, but this is your platform, not mine. Witnesses tend to be given the opportunity to express anything they’d like to express in terms of how things could be done better in the future. Is there anything you would like to say to my Lady on that topic before your evidence concludes?

Ms Kate Nicholls: I think I have just – I touched on it earlier. We need to make sure that the lessons that were learnt and the corporate and institutional knowledge of those people in the departments dealing with the crisis at the time is not lost. And I fear that that may be the case, because we haven’t necessarily got plans that are there, that are ready to be stood up again, that are keeping fresh. There’s a high turnover of civil servants who were dealing with this crisis. Some of them dealt with Brexit, some of them dealt with Covid. There were preparedness plans put in place. We need to make sure that that is available and that corporate knowledge is not lost as we go further forward.

I think the second point I would make is that if we are doing pandemic planning, it is quite clear that there is an – an economic impact alongside it. All of the preparedness planning that I’ve been involved in in the past about health crises has really only looked at the health issues and how we manage that.

We need an economic SAGE that sits alongside the health SAGE to be able to look at the economic cost-benefit analysis, the impact analysis, to make sure that the interventions, both pharmaceutical and non-pharmaceutical interventions which had such a significant impact on our sector’s ability to withstand the pandemic and recover from it, the rule of six, the “substantial table meals”, all of those had an economic impact. We need to look and see whether they are clearly delivering the health benefit that is needed.

The objective should be to deliver the maximum health benefit with the minimum economic harm, and I think that needs to be reflected when we do preparedness planning and pandemic planning going forward.

Mr Hudson: Ms Nicholls, thank you.

My Lady, I don’t know if you have any questions.

Lady Hallett: No, I don’t.

Thank you very much indeed, Ms Nicholls. As you probably know, you’re not the first person to recommend an economic SAGE, so it’s obviously something I will consider very carefully.

Thank you very much indeed for the help you’ve given to the Inquiry in preparing the witness statement and, of course, the evidence today. Very grateful.

The Witness: Thank you, my Lady.

Mr Hudson: My Lady, I think now there will be a slight change-around in the hearing room.

Lady Hallett: Ms Dhanoa.

Ms Dhanoa: Thank you, my Lady.

My Lady, may I please call the next witness, David Postings.

Mr David Postings

MR DAVID POSTINGS (sworn).

Questions From Counsel to the Inquiry

The Witness: Good morning.

Ms Dhanoa: Thank you for attending today, Mr Postings, and assisting the Inquiry.

You’ve provided a witness statement for this module of the Inquiry, dated 27 October 2025, with the Inquiry reference number INQ000588229; is that correct?

Mr David Postings: Yes.

Counsel Inquiry: Mr Postings, you are CEO of UK Finance currently, and you’ve held that position since 1 January 2021; is that correct?

Mr David Postings: That’s right.

Counsel Inquiry: And prior to yourself, Stephen Jones, or – it was actually Robert Wigley, apologies, who held the position of Executive Chair from June 2020 until December 2020, and prior to him it was Stephen Jones who was CEO until June 2020; is that correct?

Mr David Postings: That’s correct.

Counsel Inquiry: And your evidence which you have prepared by way of statement relates to events prior to you holding the position of CEO and it’s based on contemporaneous documents and discussions with UK Finance colleagues; is that correct?

Mr David Postings: That’s correct.

Counsel Inquiry: In terms of the role that UK Finance plays, is it correct that it’s a trade association for the UK banking and financial services sector, and represents over 300 financial services firms acting as a collective voice for the banking and finance industry?

Mr David Postings: That is correct.

Counsel Inquiry: In your statement, you explain that ordinarily, outside of an emergency situation, UK Finance had regular engagement with the UK Government, and you explain that during the pandemic, this didn’t fundamentally change; is that correct?

Mr David Postings: That is correct.

Counsel Inquiry: And in fact, there was significant engagement between UK Finance and UK Government during a very compressed period between March and June of 2020, particularly focused on the design and development of the loan guarantee schemes; is that correct?

Mr David Postings: From what I can read, yes, that is correct.

Counsel Inquiry: You also set out in your statement that relationships between UK Finance and government, you describe it as being very good at the outset and that continued throughout the pandemic. In terms of the reference there to UK Government, in your understanding, does that mean Treasury, the Department for Business, Energy & Industrial Strategy, which I’ll refer to as BEIS, does it include both of those?

Mr David Postings: Yes, our prime relationship is always with the Treasury but yes, it does.

Counsel Inquiry: And does that characterisation of how engagement was carried out during the pandemic period also include the relationship between UK Finance and the British Business Bank?

Mr David Postings: Yes, we had a – we had and still have a strong relationship with the British Business Bank, and indeed the regulators.

Counsel Inquiry: From what you’ve read and putting together the statement, is it your impression that UK Finance, as the collective voice for the banking and finance industry, was heard and taken account – and its concerns taken into account, during the formation of the loan schemes?

Mr David Postings: It, from what I can see, it looks as if we were listened to, yes.

Counsel Inquiry: One aspect that I want to just touch on briefly in terms of engagement between UK Finance and, in particular, BEIS, was the BEIS-led business representative organisation calls, which, as you may have come across, UK Finance did attend.

As far as you were aware, how effective were these calls in terms of raising UK Finance’s concerns?

Mr David Postings: It’s very difficult for me to know, because I wasn’t there, but from what I can see, it looks as if we were listened to and we certainly would have had a voice around the table, which is why we were included.

Counsel Inquiry: And as far as you are aware, and I appreciate you wouldn’t have attended those calls yourself, is that sort of – is that a forum of a sort that you consider would be helpful going forward in terms of engagement in another situation that might be an emergency?

Mr David Postings: What we try – the way we try to operate is collaboratively, so that whilst we represent the interests of our members, you know, we do in a way which is try to be really helpful and supportive of the overall aims of the government at the time.

So I would imagine that a similar group would – would be useful in the future, and that we would be part of it and want to be part of it.

Counsel Inquiry: Thank you. I want to now move on to look at the first loan scheme that was developed, the Coronavirus Business Interruption Loan Scheme, which I’ll refer to for ease as CBILS. It’s correct, is it, that the scheme was announced by the Chancellor in the budget on 11 March 2020?

Mr David Postings: I don’t recall the date personally, but if it’s in the witness statement, that is correct, yes.

Counsel Inquiry: Thank you.

The scheme was announced on the 11th in the budget, and it was launched on 23 March, so there were 12 days between the announcement and the launching of the scheme, so it was a very quick turnaround in terms of when the intention was made to have a scheme of this kind and then when it – in effect, when it was launched.

Prior to the announcement on 11 March, is it correct that UK Finance was already engaging with its members in relation to support for small and medium enterprises and what that might look like?

Mr David Postings: My understanding is that was happening, yes.

Counsel Inquiry: I want to just bring up an email now, if I could.

It’s INQ000548770, please.

And this is an email from Stephen Jones, as you’ll see, who, as we’ve said, was CEO of UK Finance until June 2020.

Mr Postings, I appreciate this is not an email that you have written yourself, but we can see that it was dated 8 March –

Mr David Postings: Mm-hm.

Counsel Inquiry: – and sent to an official within HM Treasury.

At the first paragraph, the email says:

“We have spoken to CEOs commercial banking and there is strong support for a public/private sector initiative focused on working capital support for businesses £3m to £25m turnover and lines of up to £5m subject to repayment based on the Enterprise Finance Guarantee platform, but with radically streamlined criteria and processes compared to existing EFG programmes.”

I just want to pick up on some of what’s written in there. In particular, that there was already consideration, it appears, as to using the existing infrastructure by way of the Enterprise Finance Guarantee.

We can see there it’s described that it should be “with radically streamlined criteria and processes, compared to the existing” infrastructure by way of the EFG.

Are you able to assist at all with what may have been – again appreciating it’s not written by you, but what, perhaps, UK Finance was considering at the time as to what might have been rolled out by way of a support scheme with radically streamlined criteria and how that might be different to the existing EFG scheme?

Mr David Postings: I can only imagine – I should point out John Glen was the minister rather than official, by the way. I can only imagine that what they were trying to achieve was speedier transaction times, given the volume – the likely volume.

The – as to exactly what the processes – how they would change, I can’t – I’m afraid I – I’m unaware.

Counsel Inquiry: Thank you.

So, from picking up what you’ve just said, is it that you consider that at that time, 8 March, there was consideration being given to the potential for huge volumes of lending taking place under a particular type of support scheme that might be developed?

Mr David Postings: Well, in a lockdown scenario, it was pretty obvious that all businesses would have some kind of financial stress. And working capital is the lifeblood of all businesses, profitability is less important in the immediate term, and so providing some kind of working capital support seemed to be really important. And the banks would have undoubtedly leant into that and tried to find ways to support their customers as best they could.

And the EFG scheme is – is one of those options.

Counsel Inquiry: Thank you. The email can be taken down.

On the day that the CBILS scheme was announced by the Chancellor, so 11 March, there was a business representative organisations call which took place and which UK Finance attended.

I want to just take a look now at a readout of this particular call. Thank you.

And in particular, it’s at the bottom of the page, you’ll see where it says in fact what UK Finance would have contributed during that call, it says:

“… Banks doing their best to come forward with statements of support – £12 billion committed already – welcome loan scheme – looking for govt – loan scheme needs to be fast, non-bureaucratic, diligence required but encouragement required for ‘all hands on pump’ that monies made available quickly – Italy example will require fast hard work to be made available.”

Just picking up on some of what is said there, and again appreciating you would not have personally attended this meeting, references there to “fast, non-bureaucratic”. Was this in relation, do you think, to the EFG existing infrastructure?

Mr David Postings: I think so, yes.

Counsel Inquiry: And so there was a concern at this stage, on the day the scheme was announced as well, perhaps about the speed and the volume that may be coming?

Mr David Postings: Yes, I mean, the entire economy was under pressure. All businesses would have felt some pressure. And so I think the banks would have been aware and finance companies would have been aware that something needed to happen, there needed to be some – nobody was sure how long lockdown would last. And so – or how long, you know, before a vaccine was available, et cetera. Life was thrown upside down, and so providing working capital would have been a good anyway to see sustainable, profitable businesses through a crisis.

Counsel Inquiry: And are you able to assist at all with what might have been meant by, in terms of encouragement that UK Finance might have been seeking from government to get an “all hands on pump” to have monies made available quickly. What was that encouragement, perhaps? Was it support for the –

Mr David Postings: It’s a very difficult note to really understand, even if I’d been there I think this would be quite a tricky note. But it’s an opinion rather than a fact, this. But it seems to me like encouraging government and the British Business Bank to think about the issues that were raised in the previous piece of evidence you showed me.

Counsel Inquiry: And the reference to Italy, are you aware at all about what comparison was being drawn there?

Mr David Postings: No, I’m afraid I’m not.

Counsel Inquiry: Thank you.

That can be taken down.

We’ve touched already on the use of the existing infrastructure by way of the Enterprise Finance Guarantee scheme. Do you consider that a large part of why CBILS was able to be rolled out in such a short space of time was because of that available infrastructure?

Mr David Postings: It definitely helped, yes.

Counsel Inquiry: I want to now turn to look at accreditation of lenders in relation to CBILS, which was a particular issue that the Inquiry has come to learn. Is it correct that to be able to offer the CBILS to small and medium size enterprises, lenders had to be accredited by the British Business Bank?

Mr David Postings: Yes.

Counsel Inquiry: And from your statement, you explain that UK Finance was actively engaged with the British Business Bank in relation to accelerating that process for accreditation and granting it to lenders.

You, in particular, mentioned that existing Enterprise Finance Guarantee scheme accredited lenders were used initially in relation to CBILS, and that the intention was to include newly accredited lenders in due course.

At the time discussions were going on about, and from what you’ve read, about using existing accredited lenders that were already in place under the EFG scheme, what was UK Finance’s understanding, to the extent you’re able to assist, about when new accredited lenders may be able to come within the scheme?

Mr David Postings: I don’t know what UK Finance’s position was, but it felt, from where I was at the time, to be quite a slow and opaque process.

Counsel Inquiry: Okay. Are you aware as to whether there was growing frustration amongst UK Finance members about the slow process which you’ve just alluded to?

Mr David Postings: There was, yes.

Counsel Inquiry: Yes. I just want to bring up a part of your statement now, INQ000588229. It’s paragraph 59. Thank you.

And we’ll just look at the highlighted part. It says – so this was in relation to the paragraph just before the highlighted section:

“UK Finance was … involved in communications and stakeholder engagement to ensure that businesses and sector groups understood the full detail behind the [CBILS] scheme. This included representing the concerns of lending businesses that were either not accredited by the British Business Bank or were awaiting … accreditation. These businesses expressed fears of being driven out of business due to their inability to compete with a UK Government scheme that offered interest-free loans to borrowers from accredited lenders.”

To the extent that you’re aware, how widespread were issues and fears of this kind amongst businesses who were not accredited and were awaiting accreditation?

Mr David Postings: It was a very real concern, and the reason I know that is because I was chief exec of one of those businesses at that time.

Counsel Inquiry: Okay. In another part of your statement, which I won’t bring up, you refer to “not every accredited lender was offering all CBILS variants.”

Are you able to assist with what’s meant by that?

Mr David Postings: I’m sorry, but no, I don’t know enough of the detail to be able to tell you exactly what that means.

Counsel Inquiry: Okay. But it appears from that that there were accredited lenders who were offering some form of CBILS and some who were not?

Mr David Postings: It may be to do with their credit appetite, it may be to do with their balance sheet. I’m not sure.

Counsel Inquiry: Okay. I want to look at another document now, it’s INQ000655613, please.

And this is taken from the British Business Bank’s evaluation report of the loan schemes, which was published in June 2022. And it notes in the part that we have on the screen the following about the speed of the accreditation process, which the Inquiry understands, and as you’ve said, was a particular issue.

So just looking at that, we’ll come on to look at figure 6 in a moment, but it says:

“… the speed of the accreditation process was highly variable (particularly for CBILS and the later [Coronavirus Large Business Interruption Loan Schemes], where several lenders were not accredited to the schemes until they were accepted in September 2020).”

And it gives some figures there as to how long it was taking, and according to the British Business Bank, the average number of days to completion was 66 days, but some variation there as to the type of lender.

The second paragraph at the bottom of the page:

“This was partly attributed to the ‘iterative’ nature of the application process, with the British Business Bank querying information received from lenders, asking for more detailed information to be provided and working with the lender to ensure all required information was available to inform a decision. This process was reported to absorb time – with lenders taking time to revise or access new information and resubmit this to the British Business Bank (and examples were given of this taking weeks on occasions), while lenders reported that they could submit a response and then not hear back for … a week.”

And then just the last part of that over the page:

“The British Business Bank suggested this was due to the resources required to assess their proposals, the number of applications received, the lender’s ability to deploy funds at scale and in some cases, the complexity of the prospective lender’s operations.”

Do you agree that speed of the accreditation process and the challenges that we know now that existed with it, do you agree with what’s written in the report here, that it was highly variable for schemes like CBILS?

Mr David Postings: Well, I can only judge it from what’s written, which appears to me to be fairly accurate. My own experience of that, from the job I had at the time, was it was a pretty difficult process, and I think, going back to your earlier question, I’ve reflected on that for a moment, one of the reasons potentially that people were unable to offer all aspects of CBILS could have been the fact that some of these businesses only offered, say, invoice finance or asset finance, for example, so weren’t able to do term lending.

I think the British Business Bank would have needed to make sure that whoever was lending the money was, you know, fit and proper to do so. But the process was difficult to understand.

Counsel Inquiry: Difficult to understand the process on behalf of lenders?

Mr David Postings: Yeah.

Counsel Inquiry: Yes.

And the mention of the British Business Bank querying information from lenders, from your understanding and from what you’ve read, did that appear to you to be a particularly significant contributor to slowing down the accreditation process?

Mr David Postings: Yeah.

Counsel Inquiry: So if we just go on to look at the next page, where we can see figure 6 if we just scroll down, so that shows the number of new lenders that were accredited between April 2020 and March 2021, and so we can see that the number of the accredited lenders grew quite significantly over time. But there was a notably limited number available when the scheme initially launched in April; would you agree with that?

Mr David Postings: Yes.

Counsel Inquiry: A suggestion that’s been made in the British Business Bank’s evaluation report that we were just looking at – we don’t need to bring it up on screen – but one of the suggestions made about dealing with the issue of speeding up the process of accreditation of lenders is that, in the event of a future emergency, there could be a rolling accreditation process which could enable rapid intervention while reducing pressure on the public sector.

How does that sit with you as a suggestion, going forward, given the problems that took place with accrediting lenders more quickly in relation to schemes like CBILS?

Mr David Postings: If there was to be another scheme, I think what would – it may be sensible to accredit people before it’s needed. So do so in an area – an era when there is nothing to worry about, or – would probably make the most sense. So that if – if anything was needed to be mobilised, that people were – were already accredited. I think that would be the best outcome.

Counsel Inquiry: So your suggestion being that the accreditation process taking place and being completed before any future scheme is launched?

Mr David Postings: Ideally, yes. I mean, we should be in a position where a large – a larger number of lenders were accredited in advance so that it made it easier to deploy funds.

Counsel Inquiry: After CBILS was launched, so within the first operational week, UK Finance produced a note on key issues and potential solutions which had been identified by the industry, and that was dated 29 March 2020. The scheme had launched on 23 March. And you refer to this in your statement and you state that it was “shared with [the] Treasury for consideration”.

Are you aware at all as to whether that note was shared with BEIS and the British Business Bank?

Mr David Postings: I don’t know.

Counsel Inquiry: Well, I’d like to look at the note now.

INQ000548838. If we go to page – yes, 3, this is paragraph 6.

So this deals with accreditation of lenders. And this was being sent – this note was being sent, as I’ve explained, within the first week of the scheme being operational.

It says:

“Some 40 firms are accredited by the [British Business Bank], a number of whom are relatively small. Very little money has been lent under the pre-COVID-19 [EFG] programme … by the [British Business Bank] – it was very complicated, poorly understood and bureaucratic in seeking to protect government.

“5 new providers were accredited in 2019, with an application process that took [an] average of 9 months for each. Many potential scale providers are desperate to be accredited at speed in order to aid the CBILS deployment effort to their existing SME customers and to new potential borrowers.

“Whilst [British Business Bank] has increased manpower from 2 to 15 to enable this, the whole premise of who should be eligible needs to be automatic if government is to increase deployment at pace, and the compromise from a quality control perspective should be accepted as a necessary risk.”

Just in terms of UK Finance’s recommendation at that stage, post-launch of CBILS in relation to the issue that we’ve just looked at, accreditation of lenders, it says that who should be eligible needs to be automatic. What did you think or what do you think now of a suggestion of that kind?

Mr David Postings: Well, if a firm is PRA regulated, I think that makes sense. Some firms are not regulated in that way and they probably do need to have more due diligence around accreditation.

Counsel Inquiry: Yes. In terms of the EFG in the first paragraph being described as “very complicated, poorly understood and bureaucratic in seeking to protect government”, are those characterisations that you’re familiar with?

Mr David Postings: That was the general view of the scheme. It’s inevitably a balance between trying to allow smaller firms to grow or firms to grow, and with government support, but the government not taking too much financial risk. The balance between that and the commercial lenders is one that needed to be struck.

So the scheme itself was – was designed to try to achieve that balance, but in – it does – it does make it quite – did make it quite complicated.

Counsel Inquiry: And within this same document, as I said, was essentially feedback on the scheme post-launch, and I want to look at some of that feedback that UK Finance shared with the Treasury.

So if we go to page 1 of this document, please.

And just looking at this for now, it’s titled here at paragraph 1 “What CBILS is not”, and I just want to read out some of this. It says:

“Under the terms for CBILS negotiated by HM Treasury and the British Business Bank … accredited lenders are NOT able to deliver SME financing to all SMEs with a turnover below £45 million which is 80% guaranteed by government, despite public perception fuelled by inaccurate briefing that this is the essence of the scheme.”

And then the last paragraph:

“Simplified and inaccurate representation of CBILS as a loan available to all SMEs viable immediately before COVID-19, and with 80% of the loan guaranteed by government, has fuelled anger and resentment and made banks an easy … unjustified target.”

And it’s reference there to:

“The FSB [describing] banks as ‘exploiting SMEs’ on a call with the Secretary of State BEIS …”

Just picking up on some of that, can you assist with what UK Finance’s views were at the time as to how the CBILS scheme had been announced publicly, and how it had been perceived by the public and those who might have been looking to gain access to finance under the scheme, in particular the reference to “inaccurate briefing that fuelled public perception”? Where would the inaccurate briefing have originated from? Was that reference to the original announcement of the scheme?

Mr David Postings: I’m not sure where the inaccurate briefing may have originated from, but what I can say is that the reason this was an issue was because it didn’t cover all SMEs. There was a start point which was considerably above the vast majority of small businesses.

If you remember there was a previous note you highlighted to me where there was talk of businesses sub issue with that. And I would also say that that represents about 99 or more per cent of the entire SME population.

So CBILS was launched at a niche, not the entire SME population. It was the Bounce Back Loan that did that eventually.

And the construct of the Enterprise Finance Guarantee was designed to help businesses in difficulty. And as initially communicated, my understanding is that CBILS was based on – in that way, and lenders were still able to lend in normal commercial terms to lenders that were – did meet their normal lending criteria. And obviously there’s a mismatch there between the interest rates, the government guarantee, et cetera, et cetera, and the availability of credit, and that, I think, caused the issue.

Counsel Inquiry: And the note refers to the – what appeared to be the inaccurate representation of CBILS to the public, resulting in anger and resentment towards the banks, and the banks being treated as described there as an easy, unjustified target.

Mr David Postings: And that’s because some customers would be – meet the

criteria and have to pay a particular rate. Other

customers would possibly fall at that point under the million turnover being cash positive. I would take 3 CBILS scheme and pay a different rate. That’s my

understanding of what that means.

Counsel Inquiry: And if we go down to paragraph 2, please, so this is

“Access to CBILS for less impaired SMEs”. It says:

“CBILS has been structured by the British Business

Bank as a back-up scheme available only for those

businesses who cannot access credit from lenders on

normal commercial terms.

“[British Business Bank’s] conditions of eligibility

for the scheme require accredited lenders to make

finance available to SMEs on normal commercial terms

first. Only if the lender cannot do so is it permitted

to consider if the SME in question is eligible for

CBILS.”

And then the emboldened sentence towards the bottom:

“Banks face very difficult and reputationally

damaging conversations with SMEs in telling viable

businesses that they have to borrow on commercial terms

and cannot access CBILS.”

And I think this is what you were just referring to

when looking at the previous paragraph.

So it was perhaps UK Finance that was having to have

these difficult conversations, and with businesses or lenders were having to do so to be able to explain to them that CBILS wasn’t an option available to them.

Mr David Postings: The way we operate is to have constant dialogue with our members, and we’ve got people in our organisation who previously worked in members. So we have a knowledge of how the members operate in reality. And our job is to act as the funnel through which that understanding passes to the relevant authorities.

Now, obviously, there are bilateral conversations as well, but it’s helpful on occasion for UK Finance to act in that capacity.

And so the point that’s being made in this note is that viable customers would be given one set of terms. Less viable customers would get preferential treatment. And in fact the large majority of SMEs weren’t eligible either way. And so that’s at the heart of this couple of – two or three paragraphs.

Counsel Inquiry: Yes, and the way in which the scheme was designed was that SMEs had to be able to access funding or finance on normal commercial terms first –

Mr David Postings: That’s right.

Counsel Inquiry: – and couldn’t access CBILS straight away, although they may have appeared to understand that that was the case and that was open to them?

Mr David Postings: Yes, but there was also – that is true, but there was a flaw of size of SME, because the quantum of the CBILS loan started at the point it did, there’s – a huge majority of firms wouldn’t qualify anyway, whether they were viable or not. Because CBILS started in the mid market, not in – in what – described as a true SME.

Ms Dhanoa: Thank you, Mr Postings.

My Lady, now would be an appropriate time to take a break.

Lady Hallett: Certainly.

I shall return at 11.25, thank you.

Ms Dhanoa: Thank you.

(11.06 am)

(A short break)

(11.25 am)

Lady Hallett: Ms Dhanoa.

Ms Dhanoa: Thank you, my Lady.

Mr Postings, before the break we were looking at the particular issue of the slow accreditation of lenders under the CBILS scheme. One of the other issues that the Inquiry understands took place with CBILS was the criticism that lenders faced for slow delivery of the scheme, so getting the money to businesses that had applied for the scheme.

What is your understanding about those criticisms that were levied at lenders, and do you think those criticisms are fair, given your understanding of how lenders operate to be able to get money out to businesses under schemes like CBILS?

Mr David Postings: Well, lenders would have been dealing with their normal volumes of lending applications, and are resourced for that. They’re not resourced for a massive increase. So the sheer number of applications will have had an impact. And the process involved in CBILS was based on the EFG, which we’ve established had some issues, although it was a little more streamlined. So I think those two in combination would have made life harder.

Certainly my members were trying very hard to make sure funds were available as fast as possible but they also had to undertake due diligence, and typically, a loan wouldn’t be something you agree very, very quickly; it would take investigation, cash flow forecasts, et cetera, profitability checks, fraud checks, money laundering checks, all sorts of things, particularly if the customer is new to the organisation.

And so it doesn’t surprise me that there would be some difficulty getting funds out, because the sheer quantum, pace and the resources would all have played a part.

Counsel Inquiry: And in future, do you think the sorts of checks that you’ve just touched on or the sorts of checks that lenders ordinarily have to build in to their process before releasing finance to any business under a loan scheme, should be built into a timeline in the future?

Mr David Postings: I think it’s important, especially when you’re dealing with a government guarantee scheme, that lenders undertake appropriate due diligence, because public money is at risk. And they would do that for their own lending, so I think it is important that an element of due diligence takes place, yes.

Counsel Inquiry: I’m just going to move on now to look at the second loan guarantee scheme that was established, that was the Coronavirus Large Business Interruption Loan Scheme. And the Inquiry understands that compared to CBILS, that had a relatively smoother launch, and do you consider that was in part because it was a lower volume scheme than CBILS?

Mr David Postings: I think it’s partly the volume and partly the maturity of the businesses that would be subject to that scheme. So they’re larger, they’re better organised, and they’re more used to raising finance and the banks are more used to dealing with that type of customer. It’s an easier process. So that – and a smaller volume, as you say.

Counsel Inquiry: So lenders being more used to dealing with larger businesses which CLBILS was designed to do?

Mr David Postings: Lenders deal with all size of businesses, they’re not – but typically, a larger business will have a more sophisticated finance function, possibly a Treasury function, and so therefore the information they provide will be more complete, probably with more of a history, more forward-looking information. So the approach will be a little easier, that’s all. And the volume obviously a lot lower.

Counsel Inquiry: Thank you.

I’m going to move on now to look at the Bounce Back Loan Scheme, which was announced by the Chancellor on 27 April 2020 and it launched on 4 May 2020.

Now, the Inquiry has learnt of the particular fraud risks which were associated with the scheme. The specific feature of the scheme was the use of – and hundred per cent government guarantee. Do you consider that the use of the hundred per cent government guarantee is something that should be used in the future, given what we know about the sort of criticism that the scheme has faced as a result of a feature of that kind?

Mr David Postings: It’s difficult to form an opinion on that, except to say that the – it helped get funds lent, without doubt, because in that time of crisis, when people were looking at the viability of businesses, those that were most stretched were going to find it difficult to get funds and the benefit of a hundred per cent guarantee was that they could get funds, and so there was a possibility that they could survive the coronavirus pandemic. It’s for the government, really, to decide where their appetite lies on credit, and that credit risk.

Counsel Inquiry: And in relation to another feature of the scheme, which is the self-certification that businesses were carrying out in relation to receive finance under the scheme, in terms of your experience and as CEO now of UK Finance, how does that sit with you in terms of a feature in an ongoing scheme? Do you think that presents fundamental risks in relation to fraud, and should it feature in a future scheme?

Mr David Postings: It definitely produces increased fraud risk. The – UK Finance don’t have a view, but my personal view is that some element of increased due diligence should take place.

Counsel Inquiry: And you mention that some element of increased due diligence should take place. From the perspective of lenders and UK Finance in terms of a future scheme, what’s the, sort of, optimal sort of checks and safeguards that should be in place in a scheme of this kind? What would be ideal?

Mr David Postings: I think the improvements that after being seen in Companies House, and – and further improvements beyond the ones that are currently planned, will be very helpful.

I think it ought to be possible for any lending firm to be able to interrogate Companies House and understand whether the directors are really the directors and the firm is actually trading and – in an easier way than it currently does.

I think the – understanding the turnover of the organisation, having that attested to, and its financial viability, some element of some – even a – even a very small business should be able to provide some kind of turnover and putative profitability metrics, some idea of its debtor book, creditor base, that kind of thing. I think that’s entirely reasonable.

It would slow it up, but it’s entirely reasonable.

Counsel Inquiry: So, as a minimum, in your view, are those the sorts of checks and processes that lenders should be having the time to be able to embed in their process?

Mr David Postings: Well, it’s what lenders would normally look for anyway.

Counsel Inquiry: Yes.

Mr David Postings: And it could be streamlined to the point that it’s summary, or … but with no – with purely self-accreditation, the – the risks are higher.

Counsel Inquiry: Yes. And in fact, during the Bounce Back Loan Scheme, lenders had raised the issue of using county court judgments as a way of looking at whether that in fact presented a fraud risk, and whether they should take that into account, but the instruction was that there would be no declines based on a credit decision or resulting from an affordability check. And do you think that was a crucial, sort of, missing element in terms of what –

Mr David Postings: Well, it’s different to what people would normally do.

Counsel Inquiry: Yes.

Mr David Postings: But, trying to be balanced, the desire was to put working capital funds into the economy as fast as possible to – to the widest group of people possible, and my assumption is that the government were prepared to take the risk, given they were guaranteeing the loans at 100%, that some of them would be fraudulent or wouldn’t be repaid, but the net effect would be positive for the economy. That’s, I think, why they did it.

So you can – I understand that process.

Counsel Inquiry: Another one of the checks that was eventually put into place was the duplicate application check. Is that a particular sort of feature of a scheme and the future –

Mr David Postings: Yes.

Counsel Inquiry: – that you consider should really be in place at the outset?

Mr David Postings: Yes.

Counsel Inquiry: And during the considerations by UK Finance during the Bounce Back Loan Scheme’s life cycle was engaging in a bank fraud collaboration working group, which it jointly led with the British Business Bank. In your view and your experience, going forward, is it important to have forums like that to be able to identify particular fraud risks and speaking to lenders as a scheme is developing and to try to identify solutions?

Mr David Postings: Yes, absolutely. I think it’s vital. And that group has morphed into something slightly different, but it’s still going.

Counsel Inquiry: Yes.

Mr David Postings: Meeting on, I think, a monthly basis. And any – any fraud arena that we operate in – and we look at push payment fraud, for example, as well – the more data that can be shared, the more – the more experience can be shared, the better the outcome.

Counsel Inquiry: Yeah. Just, sort of, using your experience and perhaps looking forward, as we already have done in relation to the types of measures and checks that could be put in place in a similar scheme like this in the future, do you have any other suggestions as to perhaps how the government could have designed this scheme differently, in terms of the types of checks that might have been put in place, but whilst also acknowledging the pace at which matters were developing and how quickly finance needed to be distributed amongst businesses, given the problems that we know existed with CBILS?

Mr David Postings: The government clearly made a risk decision to put the guarantee in place at 100% and to ask for self-certification to get pace and volume. If – if the requirement was to minimise fraud risk, or reduce fraud risk, then more checks, such as the ones I mentioned earlier, would be beneficial, but that would inevitably result in slower pace, fewer funds.

So that trade-off is the crux of the matter, as far as I can judge.

I think it would have potentially been of some benefit to think about personal guarantees. Now, that is an incendiary subject with some people, but a guarantee for maybe a small proportion of the loan might have had the impact of making directors think twice. And I think that is a – and I think also possibly consideration should be given to the rate of interest, as well, whether that first year interest free was a – could be reconsidered, would be – they’d be the things I would think about.

So: enhanced due diligence – to a degree, a small amount of enhancement; potential personal guarantee for a small sum, not the full amount, to keep a director or directors interested; and to – and to make the interest rate closer to a commercial rate.

Counsel Inquiry: Okay. Thank you.

Another area I want to look at now is the way in which the schemes that we’ve already considered were monitored, and the way in which data was being shared from lenders, and where that was being sent and how the schemes were being monitored and where there was oversight of them and how they were performing.

Is it correct that lenders were using a lender portal which was part of the British Business Bank’s Guarantee and Wholesale Solutions guarantee platform?

Mr David Postings: I believe so, but UK Finance doesn’t have any access to that portal, as far as I’m aware.

Counsel Inquiry: But lenders themselves would have been –

Mr David Postings: Yeah.

Counsel Inquiry: – uploading information and data on to that portal?

Mr David Postings: That’s my understanding, yeah.

Counsel Inquiry: Just in terms of that portal itself, the Inquiry understands that it could not deal with large volumes, and a specific feature of the portal that was in issue was the manual nature of lenders having to input data. In terms of sort of monitoring schemes of this kind in the future and how lenders share data, are you able to offer any suggestions about the best way to do that, or any that you know that are being utilised at the moment that are working well?

Mr David Postings: I think the context is that nobody expected the volume to go through the scheme that it was used for. I think it’s difficult to put a system in place that quickly to deal with things.

So you could develop something now which was more streamlined, but whether that would address the next crisis in the right way, it’s difficult to judge.

Counsel Inquiry: In terms of having a system for lenders to be able to input data or live data into on a rolling basis, do you think that’s infrastructure that should be set up and in use well before another emergency?

Mr David Postings: With the British Business Bank, you mean?

Counsel Inquiry: Yes, or – I mean, the system that the British Business Bank are using or any other system that lenders might – I don’t know if lenders at the moment use any other systems where they are inputting data in relation to the schemes that are being used.

Mr David Postings: With the British Business Bank, I think it probably is sensible to have a refreshed system that is easier to use. I’m not aware of any other systems like that.

Counsel Inquiry: Thank you.

In your statement you’ve set out some recommendations that you have invited the Inquiry to consider. And one of them is a mechanism that you describe could be established to periodically test how communication between the UK Government and trade associations, such as UK Finance, work in a crisis.

Can you just assist with explaining what that mechanism would look like, and perhaps the problem that it would address in relation to, as you say, testing communication, but is it also engagement between government and UK Finance, ahead of another emergency?

Mr David Postings: We have a great working relationship with the departments with whom we deal and also, as I said, with the regulators. But it’s fair to say that in a crisis, things become quite stretched and communication is vitally important. Dissemination of information becomes hugely important. I think we have mechanisms that we work with the PRA and the Bank of England for dissemination of information. So that’s a reasonable template to use. But it’s difficult to know what the next crisis will be, and who will be involved.

Again, I think it wouldn’t be a bad idea to test them from time to time to make sure that they, you know, that we can all rise to the challenge of a future crisis, whatever that may be.

Counsel Inquiry: And one last recommendation that I want to look at that you suggested in your statement is utilising the Growth Guarantee Scheme, which is a successor to the Recovery Loan Scheme, and you suggest that that could potentially be utilised with a significant increase in its budget. Is your suggestion that that could be used as an off-the-shelf scheme going forward?

Mr David Postings: Well, it certainly could form the basis of something in the future, yes, it could do. If the whole economy needed cash pumping into it in the way that it appeared to in – for the Covid Inquiry – sorry, Covid pandemic, then having that as a basis of a scheme would make sense.

Counsel Inquiry: And a last point to pick up, but you mention also in your statement that UK Finance has since produced a draft Business and Operational Continuity Committee Industry Incident Management Plan. Are you able to shed any light on what that is intended to cover with a view to preparing for a future emergency?

Mr David Postings: Well, that’s the work I mentioned regarding the work we do with the Bank of England and the PRA on crises in banking itself. So there’s something called a Cross Market Operational Resilience Group as well, which – which looks at operational resilience issues in detail. But the BOCC is the communication tool that is used disseminate information around the industry in times of crisis.

Ms Dhanoa: Thank you.

Thank you, Mr Postings. I don’t have any further questions.

My Lady –

Lady Hallett: Thank you very much, Ms Dhanoa, I don’t have any questions either.

Thank you for your help, Mr Postings. I’m sorry we had to break in the middle, but we take a regular break as I’m sure you were warned. But anyway, that now completes all the questions we have for you. I’m very grateful.

The Witness: Thank you.

Lady Hallett: Ms Dhanoa.

Ms Dhanoa: Thank you, my Lady.

May I please – in a moment we’ll have the next witness.

My Lady, may I please call the next witness, Mr Reinald de Monchy.

Mr Reinald Monchy

MR REINALD DE MONCHY (affirmed).

Questions From Counsel to the Inquiry

Ms Dhanoa: Thank you for attending today, Mr de Monchy. You’ve provided a corporate witness statement on behalf of the British Business Bank for this module of the Inquiry, dated 15 September 2025. The reference number is INQ000653967; is that correct?

Mr Reinald Monchy: Yes, that’s correct.

Counsel Inquiry: Thank you. You are currently the Chief Banking Officer at the British Business Bank and have been since July 2025; is that correct?

Mr Reinald Monchy: That’s correct, yes.

Counsel Inquiry: And prior to that you were the Co-Chief Banking Officer of Products, which you held since November 2024?

Mr Reinald Monchy: That is correct, yes.

Counsel Inquiry: Yes. And during the relevant period that the Inquiry is looking at, is it correct that you were the Managing Director of the Guarantee and Wholesale Solutions team, and you led on specific loan schemes: the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme, and the Recovery Loan Scheme?

Mr Reinald Monchy: Yes, that’s correct, and my colleague Richard Bearman looked after Bounce Back, and Patrick Magee was the responsible – sorry, senior responsible officer, or the SRO, across all the Covid guarantee schemes, so he was in charge of the whole thing.

Counsel Inquiry: Yes, thank you.

I want to first look at and understand the role of the British Business Bank in the design and development of the schemes, but also to understand where it sits within government and how it operates.

So, Mr de Monchy, why don’t you explain the way in which British Business Bank operates.

Mr Reinald Monchy: Yes, sure. Specifically for the Covid guarantee schemes?

Counsel Inquiry: Yes.

Mr Reinald Monchy: Yes. So we – or the BBB was responsible for the operational delivery of the schemes, and we were also providing advice to government, and we also played an important role in terms of contact with the markets and the different – and the different lenders.

Government was responsible for – is responsible for the policy decisions, and they were also doing the high-level design of – of the schemes, including things like eligibility, size, and parameter, risk parameters, et cetera.

In terms of our operational implementation, that included, for example, the accreditation that has been discussed quite a bit, legals, the feedback from the market that you will provide to government, things like operations and data and monitoring, dealing with the lenders, answering questions, and – and running the processes of the – of the guarantee schemes.

Counsel Inquiry: Thank you. And just structurally, in terms of where British Business Bank is placed, just to assist those who are listening and watching, is it correct that the British Business Bank plc is a wholly – is wholly owned by the Secretary of State for the Department for Business and Trade, as it is now, and prior to February 2023 it was owned by the Secretary of State for the Department for Business, Energy and Industrial Strategy, so BEIS?

Mr Reinald Monchy: Yes, that is correct.

Counsel Inquiry: Yes. And the relationship between the British Business Bank and the Department for Business and Trade is governed by a shareholder relationship framework document?

Mr Reinald Monchy: That is also correct, yes.

Counsel Inquiry: Yes. And is it also correct that the British Business Bank is classified as a central government body by the Office for National Statistics, and is in fact considered as an arm’s-length bodies in view of the fact that it has a separate legal personality to the Department for Business and Trade and is operationally independent?

Mr Reinald Monchy: It – it – we are an arm’s-length body. The first part of the sentence I would need to check to be certain about.

Counsel Inquiry: In relation to the, sort of, objectives of the bank itself, is it correct to say that it was, in 2020, to be the centre of expertise for smaller business finance in the UK and, as you explained to us as well, one of its principal roles was to provide advice to the government?

Mr Reinald Monchy: That was one of the objectives at the time, yes, that was specifically mentioned of the British Business Bank, that is correct.

Counsel Inquiry: Yes. So, during the design and delivery of the loan guarantee schemes, the British Business Bank would have been providing expertise on, in particular, smaller business financing –

Mr Reinald Monchy: That is correct, yeah.

Counsel Inquiry: – to the government?

Richard Bearman in his statement describes the role of the bank as being the interconnect between the lenders and the government. Do you agree with that description?

Mr Reinald Monchy: Yes, I agree with that description.

Counsel Inquiry: He also states in his statement that he has heard it said a number of occasions that in 2008, during the financial crash, the banks needed the government, but in 2020 the government needed the banks. Do you also agree with that?

Mr Reinald Monchy: Yes, I agree with that. The banks were necessary as a vehicle in order to provide the funding. That is correct, yes.

Counsel Inquiry: Yes. The Inquiry’s expert on economic policymaking systems and structures, Dr Gemma Tetlow, has written in her report to the Inquiry about the role of the British Business Bank and where it structurally sat and potential challenges as a result of that. And I just want to take a look at that with you.

We’ll bring it up on screen. It’s – yes, thank you very much.

So we’ll see here paragraph 163, and it relates to what Dr Tetlow describes as:

“Confused lines of accountability for the [British Business Bank] …”

Given it was sitting between the Treasury and BEIS.

She describes that that hampered the rollout and scrutiny of the business loan schemes.

She goes on to say that:

“… the [British Business Bank] was established as, and has remained, an arm’s-length bodies of BEIS … rather than reporting to the Treasury as some other publicly run financial institutions … [do.”

And she says:

“This somewhat hampered the design and roll-out of the business loan schemes because the ministerial impetus for the schemes came largely from the Treasury and the work to design them was done mainly through consultation between the Treasury and the [British Business Bank].”

But it was BEIS who was formally responsible for the scheme.

“[This] meant that it was the BEIS accounting officer who had to satisfy [themselves] of the merits of the schemes and ultimately ask for ministerial directions … even though … [their] core department nor [their] minister had had close involvement in [the] design.”

Of the actual schemes.

I just want to get your thoughts on Dr Tetlow’s assessment there. Do you agree that there were, firstly, confused lines of accountability and that had an impact on the way in which the loan schemes were developed and rolled out?

Mr Reinald Monchy: I think, sitting on the receiving end of the decisions, obviously our role was, as we discussed earlier, to provide advice and then ultimately the policy decisions were made by government. I think those lines were actually quite clear, and I do not believe that there was a large amount of confusion from our perspective in terms of what had to be done, and which policy decisions were made.

Counsel Inquiry: Just picking up on one of the other points that she has made which is the reporting structure for the British Business Bank. So as an arm’s-length body of BEIS, as it was at the time, did you see that as an issue as opposed to it reporting to the Treasury, and do you think it should have done or it would have been helpful if there was that direct line between the British Business Bank and Treasury in terms of a reporting structure?

Mr Reinald Monchy: Yeah, it’s not really my role to comment on how government organises itself. What I do know, on balance, that during the Covid crisis, the communication between the government, or HMG, and ourselves was quite clear and there was not – I don’t think it was a significant amount of misunderstanding.

Counsel Inquiry: Thank you.

I want to look now at the first guarantee scheme which was designed, the Coronavirus Business Interruption Loan Scheme, so CBILS. It was announced by the Chancellor on 11 March 2020 and it was launched on 23 March 2020.

What was your understanding as to the policy rationale for this particular loan guarantee scheme?

Mr Reinald Monchy: Well, the steer was that – was to unlock finance at scale and at pace to businesses impacted by corona. That was the clear steer at the beginning of the crisis for us.

Counsel Inquiry: And I understand from your statement that there were discussions as early as late February 2020 between the bank and BEIS in relation to discussing potential interventions in response to the pandemic.

In fact, let’s take a look at a particular document. It’s INQ000653967. And this is taken from your statement. And as I said, it recollects these early discussions about the CBILS scheme.

So:

“… 25 February 2020, the Policy team at the Bank had a call with [BEIS] to discuss potential interventions … Following this call, on the same day, William Salt [who was working within Business Finance at BEIS], emailed the Bank Policy team to explain that the Department for Business, Energy and Industrial Strategy had been asked to contribute to a submission to the Secretary of State [at BEIS] on the potential impact on UK businesses”, and what potential support they could provide.

If we just scroll down to:

“William Salt noted:

“We and others in the department have been asked to draw on existing work that was done during preparations for a disorderly EU exit. For us, that means the Enterprise Finance Guarantee work.”

So at this stage, as early as sort of late February, 25 February, we can see that this call was taking place. There were discussions already going on about using the existing infrastructure by way of the Enterprise Finance Guarantee scheme; is that correct?

Mr Reinald Monchy: Yeah, that’s correct.

Counsel Inquiry: And what were the British Business Bank’s sort of views and considerations at the time about using that scheme as a basis upon which to develop CBILS?

Mr Reinald Monchy: Well, there were two options at the time. One was the EFG scheme, the other one was potentially the ENABLE guarantee schemes, and the decision was made to go for the EFG infrastructure, and – as what we called internally the EFG “rails”. And my view was that that was the right decision later on.

Counsel Inquiry: To use the EFG scheme?

Mr Reinald Monchy: To use the EFG infrastructure for this, yes, that’s correct.

Counsel Inquiry: As opposed to using the ENABLE scheme?

Mr Reinald Monchy: Yes.

Counsel Inquiry: And just assist us with what ENABLE was. Was that a similar scheme to EFG?

Mr Reinald Monchy: The ENABLE guarantee scheme was different from EFG in the sense it was bespoke, so you would make separate transactions with separate delivery partners and therefore it would take more time to implement, whereas the EFG scheme was a guarantee scheme which was effectively the same across the board for all the delivery partners, it was roughly the same, and therefore it would be easier to implement very quickly, and to – in case that had to be done, at pace, as was the case in – during the corona crisis.

Counsel Inquiry: And before the decision was taken to use the EFG scheme, do you recall there being any discussions or whether the bank was consulted about weighing up the options of using the ENABLE scheme versus EFG, or was the decision made pretty quickly that given the EFG was the existing scheme that perhaps most aligned with CBILS at the time, that that was the right choice?

Mr Reinald Monchy: Yeah, I wasn’t in the room when all those discussions took place, because it was primarily happening between Policy and BBB and government. Obviously, I spoke with Policy and all the – and my colleagues spoke with Policy, as well, and where exactly the decision was made, I do not know, but I believe it was actually made in government, rather than us. We may have had views and we may have – we will have provided advice or views to government – of course we don’t provide advice to ministers; that’s something that the department does, but we would talk to the different departments.

So we would have provided advice or our views to them, but ultimately the decision of which rails had to be used was a decision made by government.

Counsel Inquiry: Yes, and in your statement you set out that the EFG scheme was designed to manage several thousands of guaranteed facilities per year but not a million plus.

Mr Reinald Monchy: That is correct.

Counsel Inquiry: Yes, so in your understanding and in your view, although the decision to use EFG was taken by the government, and that was the decision that was made, did you consider at the time that although the EFG scheme was being used, it wouldn’t be able to withstand perhaps the volume that might be coming, or at that early stage, at the beginning, had you not recognised or had British Business Bank not recognised the volume that may come with CBILS?

Mr Reinald Monchy: I do not think, and I certainly did not recognise, that the scheme would be at such a size. Initially we were thinking about a much smaller scheme. And so, I think once the decision was made to go the EFG rails it made sense to continue. But with the benefit of hindsight, I do think that EFG also was the right decision also for a very large-scale scheme with many, many delivery partners, given the fact that we had, say, more than 80 or so delivery partners accredited for CBILS. It would have been difficult to have bespoke ENABLE guaranteed transactions with each one of them. It made much more sense to have effectively one scheme that all participated in, rather than negotiating separate transactions with each of them.

Counsel Inquiry: And you mention 80 delivery partners. Was that accredited lenders that were already in place in relation to the EFG scheme that were then moved to CBILS? Or was that the eventual number –

Mr Reinald Monchy: Yeah.

Counsel Inquiry: – of lenders under CBILS?

Mr Reinald Monchy: Yeah, let me correct that. We accredited another or we approved another 73 delivery partners for CBILS, and we had about 42 for EFG, so a total of 118 were accredited at some point for the CBILS scheme, so that was quite a large number of delivery partners. Initially in EFG we had 40, 42 delivery partners.

Counsel Inquiry: Yes, and you set out in your statement that there were 40 lenders that participated in the EFG, they were lenders who were familiar with the scheme and had established processes for lending under it.

Mr Reinald Monchy: Yeah.

Counsel Inquiry: So one factor, I suspect, as to why EFG was chosen as the particular scheme to build CBILS on.

You also mention in your statement that EFG was considered the most suitable scheme to flex to respond to an economic shock.

Mr Reinald Monchy: Yeah.

Counsel Inquiry: So did you consider that it was inherently flexible to be able to also be amended and expanded to what became CBILS?

Mr Reinald Monchy: Yes, but at the start of the crisis, we didn’t know, of course, how large CBILS would end up to be. But again, with the benefit of hindsight, I think it was the right decision. Ultimately, it was not our decision; it was the government’s decision. So – but it was – but I felt it was the right decision.

Counsel Inquiry: Yes, thank you.

I just want to bring up a particular part of Charles Roxburgh’s statement.

It’s at INQ000659746.

And Charles Roxburgh was the former Second Permanent Secretary at HM Treasury during the pandemic, and he makes a particular point here about the use of the EFG. He says:

“My one regret in the areas for which I was responsible is that we in HMT, BEIS and the [British Business Bank] did not collectively do more to test the operational readiness and scalability of the … (EFG) product.”

Then looking down at the last sentence, the penultimate one:

“However, with the benefit of hindsight, it would have been worthwhile to have tested the operational readiness of an EFG-based product at high volumes.”

So, just picking up on the sentiment here that’s been expressed by Charles Roxburgh, do you consider that there perhaps should have been factored in more, sort of, testing of the EFG scheme beforehand, and would that have helped, given the impending volume that was then found to be the case?

Mr Reinald Monchy: I think, with the benefit of hindsight, it would have been helpful if we had looked at the system in 2019, or earlier, to see whether we could significantly scale it up in case of a severe crisis.

By the time we were in, let’s say, February 2020, it was effectively too late to do that because we had to move very, very quickly and implement the scheme. So we didn’t have the luxury of time to test that much; we just that to get on with it and do it as quickly as possible.

Counsel Inquiry: Yes. And just thinking about the scheme, like EFG, that was used, obviously we know, as we do now, about the significant challenge with the volume as things progressed through the pandemic. Just looking forward, how best would you suggest that a scheme could be designed? Sometimes perhaps without knowing the potential volume and how many potential businesses might be attracted to apply for it, would you suggest that the way in which to do that would be what Charles Roxburgh suggested, which is always to make sure that you are testing and looking at potential scalability much more in advance of an emergency situation?

Mr Reinald Monchy: Yes, I agree with that. And currently we have the Growth Guarantee Scheme which is alive, and the Growth Guarantee Scheme is much more capable of scaling up than EFG was at the time, in early 2020.

Counsel Inquiry: Yes. So you would suggest that that’s a particular scheme that you could see being used in the future that may have the capability to deal with large-scale volume?

Mr Reinald Monchy: Yes, I think that the Growth Guarantee – in a comparable situation where we need to scale up and deal with significant number of – of facilities, then the Growth Guarantee – and many, many delivery partners – then the Growth Guarantee Scheme would be – will be a good starting point, that is correct.

Counsel Inquiry: Yep.

I want to look now at some of the changes that were made to CBILS following the Chancellor’s announcement of the scheme on 11 March, so before the scheme had been launched on the 23rd.

So a number of changes had been proposed. In terms of those particular changes, one of them was the removal of the portfolio cap and the change in position regarding the use of personal guarantees.

In terms of raising the portfolio cap, I just want to look at a particular email that was dated 19 March 2020.

We’ll just bring it up. It’s INQ000594583.

And it’s an email that was sent by Patrick Magee to BEIS officials on 19 March, so before the scheme was launched on the 23rd.

Whilst appreciating that it wasn’t an email that was written by you, I just want to look at what was written, and it says:

“Other banks/[UK Finance] are seeking to do a massive risk transfer to HMG and by moving to that type of cap will risk incentivising inappropriate lending, ongoing conduct issues and reputational risks both for HMG and Banks.

“I think you should caution Ministers firmly against a massive move such as this.

“We are your centre of expertise – please take on board.”

And these comments were provided in relation to the intended change to the portfolio cap. What was your understanding as to the British Business Bank’s views as to this intended change, and the difficulties and challenges it saw with it?

And in particular the reference to “We are your centre of expertise – please take on board”, was it the case that when particular challenges or concerns were raised of this kind, were they always taken on board?

Mr Reinald Monchy: In general, when the bank provided advice to government, our feeling was that the advice was taken very seriously and considered. On balance, the government always had to make the final call, which was perfectly acceptable. So we felt that, yes, when we provided advice, it was taken seriously.

We didn’t necessarily know what the Treasury or what DBT or BEIS at the time knew, so we looked at it specifically from a – let’s say a more narrow point of view, whereas government might have had a much wider point of view of what was going on. And we didn’t necessarily know everything they – they did. So they may have made – they may make certain decisions, and that’s up to them, and it – it doesn’t necessarily mean that they don’t take our decision into account.

And then we never felt that they didn’t take our decision – sorry, I’m not saying this – that they didn’t take our advice into account. I think in general, they did. But sometimes they decided otherwise, which is obviously fine, which is their – which is their responsibility.

Counsel Inquiry: Thank you.

And just unpacking there the comments and concerns raised about, in particular, that change to the portfolio cap, are you able to assist with what the particular concerns were that the bank held in relation to what we can see set out there, “incentivising inappropriate lending” but also “reputational risks”? What did the bank mean by those?

Mr Reinald Monchy: Well, when we read this email, we have to put it in context of when it was written. It was on 19 March, which was just before the launch of the scheme on the 23rd. Back then, the assumption was still that the scheme would be additional and would be much smaller in size.

When I say additional, there was still the condition between 23 March and 3 April that any lending that had to be done – that could be done on the scheme had to be additional, in the sense that it was lending that otherwise would not have been provided by a lender. That changed on 3 April, but that was a very important condition.

But it also means, if lending is additional, that by definition it’s more risky, because if it isn’t, then the commercial lender would have – would have done the lending by themselves without a guarantee. And that was the specific reason that the cap was put in place for EFG purposes, because we wanted to make sure – or the bank wanted to make sure that that risk was managed properly. And if you put a cap in place and they have an incentive to take a certain amount of risk, not take a – not take a very, very, very significant amount of risk, such that it would burn through the cap. And that’s where the comment came from, from – from Patrick.

So I think it was a perfectly legitimate worry that he provided – that he had at the time, on 19 March, looking at a scheme which is additional, and which didn’t have the changes which were made on the – later on.

Counsel Inquiry: Yes, thank you.

I want to move on now to look at the position with the accreditation of lenders under CBILS. And it’s correct, is it, that to be able to offer the scheme to small and medium-size enterprises, there had to be lenders who were accredited by the British Business Bank.

Mr Reinald Monchy: That is correct, yes.

Counsel Inquiry: And as we discussed earlier, there were already accredited lenders in place under the EFG scheme who were then utilised for the CBILS scheme, initially?

Mr Reinald Monchy: That’s correct, yes.

Counsel Inquiry: In your statement, you set out that:

“We accredited more than a hundred for CBILS, but we had to turn down many [other lenders] for various reasons. This resulted sometimes in very strong reactions towards the Bank.”

Could you just set out what some of those reasons might have been for turning down lenders who were very much hoping to become accredited lenders, and why the bank would have taken the view not to accredit them?

Mr Reinald Monchy: Yeah, we had to make sure that the position of the taxpayer was properly protected. So we had to be comfortable that the lender could do the lending that we wanted them to do under the CBILS scheme, and that wasn’t necessarily the case for all of them, so we had to turn down a significant a number of lenders because they didn’t necessarily meet the criteria that we had set for participating in the CBILS scheme.

Counsel Inquiry: And that criteria that you mention, was that sort of standard criteria that was in place in sort of pre-pandemic times, that the bank would have used to decide who would become an accredited lender?

Mr Reinald Monchy: Yes, that’s right. Therefore, for example, they had to have experience in lending to SMEs; they had to have a certain amount of processes in place; they had to have, I would say, the sufficient scale; they had to have the funding for – available to be able to lend to SMEs. So there were a set of criteria that they had to meet for them to be accredited.

Counsel Inquiry: Looking back, do you think that the process that the British Business Bank were utilising to accredit new lenders could have perhaps been changed to deal with the criticism of the slow accreditation of lenders? Do you think it was to do with the process that the British Business Bank had in place?

It came up in discussion with the previous witness, David Postings of UK Finance, that there were a lot of questions that British Business Bank were asking of those who wished to become accredited lenders, and that may have slowed down that process.

Mr Reinald Monchy: Yes, we did change the accreditation process, and there was a paper in my statement or – that was provided. So we took a risk-adjusted methodology, which meant that those lenders that were accredited for EFG were accredited immediately for CBILS, and then late – and then we looked at how we could expedite the process.

And we quickly, or relatively quickly, accredited all of the regulated banks. For the non-bank FIs, and to some extent, the CDFIs, the community development financial institutions, but also the non-bank financial institutions, it had to take longer sometimes. One reason was the sheer number of them that wanted to be accredited. The second reason was that some of them had fairly complicated corporate structures, and we also had to make sure that the lending they did was properly protected, should one of those lenders go under, for example.

So we had to look at – most of the lending happened via special purpose vehicles, and we had to make sure those things were properly structured. That if, for example, the lender were to go under, that there was still – the servicing would still continue and in certain cases there was a back-up service in place. So all of those things we had to make ourselves comfortable if – that if something went wrong, that the taxpayer’s position was properly protected.

And that obviously created friction with some of the delivery partners because they wanted to be accredited or potential delivery partners wanted to be accredited much more quickly.

For us, we were very aware of this problem, and it was seen as a significant problem. But ultimately, we had to make a decision of doing it as safe as possible, but still fast, or just take shortcuts. And we decided that we could accredit some of the lenders very quickly, now, but we could be paying a price later on and that could result in significantly higher losses for the taxpayer.

It also meant that we had to be comfortable with the way they lent, for example. That’s often forgotten. We also had to make sure, for example, that the funding that they got was at a reasonable price. So there were a lot of things we had to get comfortable with before we could actually accredit them and go out and lend.

The large lenders, many of them were actually accredited fairly quickly, especially after the changes that we made in terms of the accreditation process, but for the many smaller non-bank FIs, which are actually quite important, which we really wanted to accredit, it sometimes took longer because there was a lot of work involved in getting it all done, and there was also an issue of capacity within the team.

We obviously got, at some point, outside help, but a lot of people were pulled into this process and we had, although we had securitisation experience which helped us getting through this process, there was still the capacity issue, the sheer number of people that you needed to accredit so many people because we got – well, we got 265 – sorry, 256 expressions of interest. Turning down – and that’s also something that is sometimes forgotten is, to turn the delivery partners down is also very time consuming because obviously many of them didn’t want to be turned down because they all wanted to participate for obvious reasons, because if they were not part of the – if they were not accredited in CBILS it was very difficult for them to continue their business and to lend because all the borrowers would go to those lenders that were participating, because they wanted to – of course they wanted to get the BIP, the Business Interruption Payment, which was effectively paying for the first year of interest.

So there was a lot of tension there because if they were not accredited, it was very difficult for them to lend in that first year.

Counsel Inquiry: Yes, and as you’ve alluded to, there was growing frustration amongst those who were waiting to be accredited and also fears amongst them, which we discussed with the David Postings, about them fearing that they would be driven out of the market.

Just in terms of the particular issue about the slow accreditation of lenders and the criticism that existed around that, do you think, looking back, an automatic accreditation process may have helped to deal with the issue at the time, or do you think that’s a dangerous way of dealing with a process of accrediting lenders?

Mr Reinald Monchy: Well, it certainly would have helped the speed, but it would have been a very risky exercise. It would have been quite risky to just accredit lenders without knowing much about the way they lend, their processes, et cetera. So I think from a risk management perspective, that would have been a very, very risky decision to take.

Counsel Inquiry: Yes.

Another related issue to the slow accreditation of lenders and the criticism that came with that was the speed at which borrowers were able to obtain finance. So the speed at which lenders were delivering money to businesses under the scheme. And you explain in your statement that:

“Lending under CBILS was initially slow, and from early to mid April 2020, there were public criticisms that funds were not reaching businesses quickly enough.”

You mention that:

“This was unsurprising, given that lenders had to get their processes established following the rapid launch of CBILS and were inundated with demand from applicants in light of the exceptional circumstances.”

The Inquiry understands that lenders faced a raft of criticism about the slow delivery of the scheme and getting money to businesses who had applied and were waiting for that. And in some cases, we’ve heard that businesses were only a matter of weeks away from running out of finance, and so were really waiting and dependent on the finance that came from CBILS.

Given what you’ve set out in your statement about one, the rapid launch of the scheme, but also the processes that lenders had to go before they could release money to businesses, do you consider that the criticism lenders faced was fair?

Mr Reinald Monchy: Well, that’s a difficult question to answer, because there were so many of the lenders. And for some of them it may have been fair, and for others it may not have been fair. What I do know is that the lenders had to do a significant amount of work to get themselves ready to lend under the scheme. They also had to get – initially there were things like a viability test, there was also the additionality test initially, and then there were all the changes that were made. Of course the launch was on 23 March, and then on 3 April there was a change, there were some changes on 27 April, there were some changes, et cetera, and they had to adjust their processes and their systems and everything, when we made those changes, or – well, when the government decided to make the changes and we implemented them.

So it’s understandable that they needed time to get everything up and running, especially for the large lenders. It just takes time to get these things, to get organised.

So it’s the criticism fair? I think that lenders did work tremendous hours, in many cases also like seven days a week to get it all up and running. So I think they did, given the situation they were in, they – I think they did an excellent job in trying to get it all up and running as quickly as they could.

Counsel Inquiry: And do you consider that there was a significant gap in the expectation between the political will to roll out a scheme of this kind at the pace it was being done, but the government fully understanding the sort of operational difficulties that there were within lenders to be able to make sure that the processes were in place, as you’ve described, that were needed, before they could confidently deliver money to the businesses who had applied? Do you think there was a misunderstanding there about the capacity and capability of lenders to be able to deliver finance?

Mr Reinald Monchy: I cannot really comment on what they thought, but what I do know is that they also had very, let’s say, frequent contacts with the lenders. So my suspicion – or I think what happened is that they knew what was going on, and they – they understood what was going on, but a decision was made to move as quickly as possible and then to make changes, incremental changes, as necessary, because waiting was simply not an option, something had to be done as quickly as possible. And even though it wasn’t perfect, it was better to start and then make incremental changes as – as necessary. That is my feeling. That was my understanding of what happened. But to know exactly what the government thought, I wouldn’t know, because I wasn’t in the room when they – when they were discussing.

Counsel Inquiry: Yes. And as you’ve mentioned, there were changes made to CBILS on 3 April 2020, and there were a number of changes in fact that were made. Some of them we already looked at to an extent in terms of their position before the scheme was launched in relation to the cap on personal guarantees, which we looked at earlier. But there was also the removal of the additionality requirement, so the scheme was no longer only available to businesses that were able to demonstrate additionality, so meaning businesses – those that were unable to secure commercial financing otherwise.

Was that a welcome development?

Mr Reinald Monchy: I’m sure that was a welcome development for – for the lenders and the borrowers, because the additionality requirement was – was potentially quite restrictive, and it actually meant that many, many more borrowers or small businesses had access to the scheme that previously didn’t, especially if you combine that with the Business Interruption Payment, which was in place on 23 March, at the time of launching. Not to have those – to have additionality and a BIP together is a combination which – which would create some friction, so to take away the additionality requirement on 3 April I think was the logical decision to take.

Counsel Inquiry: And in the addition to the removal of the requirement there was also an increase to the maximum loan size, and that increased from 1.3 million to 5 million, and in terms of the eligibility of the scheme itself, that was extended to, in fact, all sectors –

Mr Reinald Monchy: Yeah, the –

Counsel Inquiry: – is that correct?

Mr Reinald Monchy: Yeah, the – it’s correct. The maximum amount was increased, which was quite a significant change as well, actually, because it used to be – I think it was 1.2 million, for 5 years.

Counsel Inquiry: Yep.

Mr Reinald Monchy: So, yes, those were significant changes which were helpful.

Counsel Inquiry: Were there any changes that were made on 3 April that gave rise to concern for the British Business Bank, or were these changes that the bank considered were very much needed?

Mr Reinald Monchy: I can’t speak for the bank as a whole, but I think most of us felt that these were changes which were understandable. Again, we didn’t know necessarily what government knew, but what we did realise is that it would significantly increase the size of the scheme, especially the combination of not having the additionality requirement and the Business Interruption Payment would mean that very, very large numbers of businesses would request a loan under the CBILS scheme. And given the situation we were in, with the benefit of hindsight, I think that was a sensible decision.

At the time we were so busy operationalising, I’m not sure we had that much time to think that much about the why; we were just executing at some point.

Counsel Inquiry: So, from what you’ve just said, the effect of some of these changes, in particular the increase in the loan size, would have impacted the value of applicants and therefore placing difficulties operationally on the bank?

Mr Reinald Monchy: We did realise that this would mean a significant increase in demand and therefore a significant increase in a number of facilities to be provided on the CBILS, and obviously that was one of my worries in those days, from a systems perspective.

Counsel Inquiry: Yeah. And the position with personal guarantees, we touched on this slightly earlier, but on 26 March, so that was three days after the scheme had launched on the 23rd, the decision was taken by the secretary that no personal guarantees would be required from borrowers for facilities below 250,000, and for loans above £250,000 a tweak to the scheme was made so that if a business defaults on a loan, they could call on personal guarantees but only up to the value of 20% of the outstanding balance.

You explain in your statement in relation to those changes that the British Business Bank had severe reservations about the short and long-term impact of those changes. In particular, you mention that:

“… we should continue to allow [personal guarantees], at lenders discretion … but to put a blanket ban on [the] use of [them] would be counterproductive.”

Was that a particular concern at the time that you recall?

Mr Reinald Monchy: That was indeed a concern that the bank had at the time.

Counsel Inquiry: Before we move away from looking at CBILS, and moving on to the Coronavirus Large Business Interruption Loan Scheme, I just want to look at two reflections which you set out in your statement about the scheme.

If we look at your statement – and we’ll bring them up, INQ000653967, thank you.

And this is the first of the reflections. You state that:

“A point [you] cannot highlight enough … is the speed at which decisions had to be taken and processes had to be implemented … CBILS was launched in just a few weeks …”

And this did not, as you say, give time for – did not provide time:

“… for detailed economic assessments of the potential impacts on the economy and corresponding risks.”

Then if we can look at the next paragraph, paragraph 8, it says:

“One area which is perhaps less emphasised in this statement is the impact this had on the Bank and lenders in terms of operationalising the schemes and their employees. There were many practically issues which understandably would not have been the primary focus of policy makers.”

Just looking at both of those together in terms of standing back and reflecting on the scheme as a whole, is it right that the speed at which the scheme was rolled out placed enormous pressure operationally on the bank?

Mr Reinald Monchy: Yes, it did. Yes, it did. Absolutely, yeah.

Counsel Inquiry: And the reference in the paragraph that is there on the screen now, at paragraph 8, says:

“… many practical issues which understandably would not have been the primary focus of policy makers.”

By that, did you mean that many of the practical challenges and operational difficulties upon the bank were simply not in the contemplation of those who were designing the scheme?

Mr Reinald Monchy: Well, I’m sure they considered it, but it was not their primary focus. They had to think about bigger things. So, again, it was the right decision to – to launch – I believe, with the benefit of hindsight, that it was the right decision to launch as quickly as possible. But we, the BBB, had to deal with the operational impact of it.

And the devil is in the detail. It’s not only operationally, it’s also in terms of documentation, it’s also in terms of the underlying, let’s say – there were four different products under the CBILS scheme, which was overdrafts, term facilities, invoice finance and asset finance, and they all had their own little tweaks.

Then there was the waterfall. What happens if one of those loans defaults? What happens if one CBILS loan defaults and there’s also a commercial facility outstanding, how does one – how do the proceeds of any work out? How are they going to be allocated between the different – between the guarantor and the other lenders, et cetera?

So a lot of, let’s say, detail that had to be sorted out as quickly as possible. And that was – it’s detail, but it’s important detail, because it’s all about the mechanics of the scheme, and that’s what the lenders obviously wanted to know, because for them it has a direct economic impact.

And that had to be done very, very, very, very quickly, in a matter of sometimes days.

Counsel Inquiry: Looking ahead and in the future, do you think that there needs to be built in a better understanding from the outset, perhaps, by those who are in the position within government to make the policy decisions about the practical, operational processes and difficulties that may come as a result of the delivery of the schemes? Do you think there’s a slight disconnect between those who are designing and those who are delivering?

Mr Reinald Monchy: Again, I can’t – I don’t know what they knew and what their thinking was in government when those decisions were made, but I think there was – it was necessary to make those decisions very quickly, and it was necessary to do something. So I think, whether they knew or didn’t know about all the detail that came with it, I don’t think – and again, I was not in the room when those decisions were made, but I do not think that it would have impacted the decision to go ahead, because ultimately, these were all things that could be resolved, and were resolved, mostly, and I think that’s – it just had to be done, and it had to be done as quickly as possible.

If we are in a situation like this again, we are much better prepared, because the current – the Growth Guarantee Scheme is a very different scheme from the EFG used to be, so it is easier to scale up. But the changes that had to be made just had to be made as quickly as possible, and I do not necessarily think that people in government did not realise that there was a lot of, let’s say, operational and detail that had to be sorted out. I’m sure they did realise it, but they had other things to weigh off, again, I assume.

Counsel Inquiry: So you consider it was perhaps a trade-off that they were aware of the pressures upon the bank to deliver the scheme in the way in which they had designed, but in fact, in reality, their hands were tied in that they couldn’t have allowed more time?

Mr Reinald Monchy: Yes, that’s what, I think. Obviously I don’t know, but that’s what, I think.

Counsel Inquiry: No, those reflections are helpful.

The Coronavirus Large Business Interruption Loan Scheme was the second loan guarantee scheme which was designed, and the Chancellor announced his intention to launch that scheme on 2 April. And it was designed to provide support to what became known as the squeezed middle; is that correct?

Mr Reinald Monchy: Yes, that is – that’s my understanding, yeah.

Counsel Inquiry: And the scheme was designed to provide financial support to those companies that were essentially too small to be eligible for support via the Bank of England’s Covid Corporate Financing Facility, but were too big to be able to apply for a loan under CBILS, and that’s why they were termed the “squeezed middle”?

Mr Reinald Monchy: Yes, that is correct.

Counsel Inquiry: A particular aspect I wanted to look at in relation to CLBILS was the bank’s operational capacity to deliver this scheme and that’s something that we’ve just touched on in terms of those operational pressures that were on the bank during this significantly difficult period where things were moving at such pace, but in relation to the CLBILS scheme, was this an example where the bank was conscious or nervous about the fact that it would be involved in developing and delivering a scheme that sat outside its core remit and expertise of helping smaller businesses in relation to accessing finance?

Mr Reinald Monchy: Yes, there was a certain level of nervousness about it, because our remit is SME lending, more granular lending on the debt side, I’m not talking about equity, I’m talking about the debt side, and our expertise was primarily on that type of lending, let’s say up to 5 million or so.

For CLBILS, initially it went up to 50 million and then later on even to 200 million. So the approach to risk is different because if you have larger tickets – if you have a very large number of small loans, then you can take a more actuarial approach to risk, so you look at a more statistical approach, whereas if you have, let’s say, some very large exposures, normally as a lender, or a guarantee, you would look at the individual loans in much more detail than you do if it is a very granular portfolio.

And because the size of the facilities on the CLBILS were significantly larger, that’s a very different type of risk. It’s also a different type of lending, it tends to be much more structured, and it is a different market as well.

So there was a certain level of concern about the fact that this is not something which is our natural remit; it was outside the SME remit.

Counsel Inquiry: And given delivering a scheme outside of what was the Bank’s core expertise as it usually was, was that a concern that was raised with the Treasury and BEIS at the time? Are you aware?

Mr Reinald Monchy: I was in telephone calls when it was raised, and it was – and it was, I’m sure it was taken on board. But again, ultimately, the decision to go ahead and do it via, effectively, the CBILS rails, as it was called back then, was a decision made by government, and we executed.

Counsel Inquiry: Do you think that, again, that was perhaps an example of where those who were taking the decisions and were involved in the policy design of the scheme, were aware of CLBILS being a scheme where the British Business Bank would have been pushed outside of its normal remit of expertise, but in fact, because it had already been involved in delivering CBILS, that in fact given the pace at which things were developing, there was no other choice but to use the British Business Bank?

Mr Reinald Monchy: Yeah, I – again, I can’t speak for what they decided and why, but being an outsider to some extent and then working at BBB, I could imagine that those were the drivers to make the decision, because it was something they could do on top of CBILS, operationally very quickly, the number of CLBILS was only – what was it – about just over 700 loans.

And – well, of course, we didn’t know at the time it was going to be just over 700 loans, but it was not going to be 100,000 loans, for example.

So it was a – it was – I’m sure the decision was made, and that people in government were aware that it was outside our remit. But they decided to go ahead anyway, which was fine. I’m pretty convinced that they knew what they were doing in terms of making that decision.

Ms Dhanoa: Thank you.

My Lady, that would be an appropriate time to break for lunch.

Lady Hallett: Thank you very much indeed, Ms Dhanoa.

Mr de Monchy, I’m sorry we can’t complete your evidence before lunch, you were probably warned that we would ask you to come back this afternoon, but I promise we will finish you, possibly by about 2.30, and have you on your way. So thank you for your help so far and see you this afternoon.

The Witness: Thank you.

Lady Hallett: I shall return at 1.45.

(12.45 pm)

(The Short Adjournment)

(1.45 pm)

Ms Dhanoa: My Lady, can I check that you can see and hear us okay?

Lady Hallett: I can, thank you, Ms Dhanoa. Thank you very much.

Ms Dhanoa: Thank you.

Mr de Monchy, before lunch, we had started to look at the CLBILS scheme and we had looked at the Bank’s operational capacity to deliver the scheme.

One particular aspect I want to look at now is the lenders that were involved in that scheme, and is it correct that the number of delivery partners accredited under CLBILS was much more limited than in relation to CBILS, and in fact I think it was less than 30; is that correct?

Mr Reinald Monchy: Yes, that’s correct, yes.

Counsel Inquiry: And was this sort of normal and expected, given the design of the particular scheme, and that it was meant for only the larger lenders, and so therefore there would have been a limited number of accredited lenders who would have been able to provide the type of lending that was needed?

Mr Reinald Monchy: Yeah, it was meant to be for those lenders who had experience, let’s say, in making larger loans available. So it was expected to be a much smaller number, that is correct, yeah.

Counsel Inquiry: And as I had said at the outset when we began looked at the CLBILS scheme, we had discussed that it was created because there had been discussions about the need for support for what was termed the “squeezed middle”, and by 27 March 2020, the Inquiry understands that those discussions about need of support for that particular category of businesses was already being discussed in the press.

And in your statement, you set out that you were not aware of much information being provided to the bank around that time, and it wasn’t until 2 April 2020 in relation to policy thinking that the British Business Bank really understood about the need for a scheme like CBILS; is that correct?

Mr Reinald Monchy: Yes, that sounds correct.

Counsel Inquiry: So it wasn’t until 2 April 2020, which was the time when the bank was understanding what the policy thinking was around the scheme, but that was also the same day, was it not, that the Chancellor announced his intention to launch the scheme, and also, it was the next day, on the 3rd, that he publicly announced the scheme itself.

Would you have expected to have been consulted and involved in discussions about the design and policy thinking of a scheme of this kind much more in advance?

Mr Reinald Monchy: Ideally, we are involved as quickly as possible, as early as possible, that’s always the case, because that allows us to prepare as well as possible.

Counsel Inquiry: So do you consider, because of perhaps the pace at which matters were travelling, that was probably the earliest opportunity, do you consider, that it would have been possible to involve the British Business Bank in the policy design?

Mr Reinald Monchy: Yeah, I do not know the answer to that question, because I do not know exactly what took place in – in government. So the short answer is I don’t really know why we were not involved in it much earlier.

Counsel Inquiry: Thank you.

Moving on to look at the amendments that were made to the CLBILS scheme, on 19 May 2020 the Treasury announced that from 26 May, CLBILS would be expanded for certain large businesses to increase the maximum loan size under the scheme from £50 million to £200 million. Are you familiar with that amendment that was made at the time?

Mr Reinald Monchy: Yes. I am very familiar with that.

Counsel Inquiry: Yes. In fact, you mention in your statement that that particular announcement was made without consultation with the bank. Would you have been expected, given the significant increase, that the bank would have been much more involved in that decision, perhaps given the operational pressures it placed on the bank?

Mr Reinald Monchy: Well, in normal circumstances, the answer to that would be yes. But of course, we were still in the middle of the crisis, and things had to move very, very, very quickly. So I could imagine, in that case, that it was – that there were reasons that we weren’t involved in it earlier.

Going up to 200 million, it’s not necessarily an operational problem; it’s more because – it is more the mere fact that the amount is so much larger which has an impact, it’s not – it’s not that – booking the loan or booking the information in the system, or things like that, that’s not – that’s not the main issue. The main issue is that, of course, 200 million is a much bigger amount than 50 million. So that obviously – that was a big – that was quite a big change.

Counsel Inquiry: So what particularly about that particular change and announcement were you perhaps referring to in your statement when you said it wasn’t made in consultation with the bank? Was it the fact that the loan size itself had been increased to the level it had, to 200 million? Would the bank have liked to have been involved in the decision to come up with that ceiling?

Mr Reinald Monchy: 200 million is even further out of our remit than 50 million, so, ideally, the bank would have been involved at the very start in those conversations. But again, these were different times, and things had to move very quickly. So government probably did what they had to do, and – and I don’t really have an opinion about it, whether it was right or wrong, I just – we just realised that this was what was happening, and then we got involved very quickly, as soon as we heard about it.

Counsel Inquiry: And the Inquiry understands that the uptake for CLBILS was much lower than that for CBILS. Do you consider that was because the nature of CLBILS as a scheme was much more targeted, in that, although it was a much larger scheme, it was intended for a much smaller group of borrowers? Is that why?

Mr Reinald Monchy: Yes, that’s exactly why. And also, of course, there was no Business Interruption Payment involve – Payment involved, but that was another difference.

But, yeah, the addressable market is – was potentially much smaller than it was for CBILS. CBILS. And that shows that the number of loans was just over 700, and for – for CL – for CBILS it was roughly over – it was more than 100,000 loans. So you’re talking about a very different market.

Counsel Inquiry: And given that the scheme was much targeted in that it was for a specific type of business that was much larger and that there was a limited pool of borrowers who were seeking to apply for the scheme, for the British Business Bank, do – was the experience much smoother, operationally? Because the volume was much less?

Mr Reinald Monchy: From a pure operational perspective, it was much smoother. For example, the Business Interruption Payment was operationally quite a big thing. We didn’t have such a thing in CLBILS. The number of loans in CBILS were significantly larger. The delivery – the number of delivery partners in CBILS that had to be accredited was also significantly larger, whereas for CLBILS we had – what was it? – I think for CLBILS, we had 27 delivery partners that was accredited. So it was still a lot of work but it was not as much of work as it was for CBILS, because of the sheer numbers of the – of the delivery partners that you had in CBILS, for example.

So, from a pure operational perspective, it was – it was not as large as CBILS. Of course, from an exposure perspective, it was a very different story.

Counsel Inquiry: And just in relation to picking up there the number of accredited lenders under CLBILS, were some of those lenders also accredited under CBILS that were carried over or were they –

Mr Reinald Monchy: Most of them – many of them were also in – in CBILS, that is correct, yes.

Counsel Inquiry: So that would have aided with the smoother delivery?

Mr Reinald Monchy: Yes.

Counsel Inquiry: Yes. I want to move on now to look at the Recovery Loan Scheme, and that was launched on 6 April 2021, and it was after the three initial loan guarantee schemes, CBILS, CLBILS, and the Bounce Back Loan Scheme, and those had initially ended on 31 March 2021.

Would it be correct to describe those initial schemes as mostly focused on business survival, but the Recovery Loan Scheme was geared more towards transitioning to a business recovery footing? Is that how you saw the Recovery Loan Scheme?

Mr Reinald Monchy: That’s right, and also – yes, that – that is right. And also for – I think more of a focus on investments as well. So to recover, that is right. It was – the objective was different.

Counsel Inquiry: And it was more a step in the direction of, sort of, getting back to business as usual?

Mr Reinald Monchy: That’s right.

Counsel Inquiry: Yes.

You explain in your statement that by the time the Recovery Loan Scheme was introduced, the landscape as it was at that time during the pandemic was very different to the time at which CBILS, CLBILS and the Bounce Back Loan Scheme was introduced.

Could you just set out, sort of, how circumstances had changed by the time the Recovery Loan Scheme was established?

Mr Reinald Monchy: Yeah, there was – one significant difference was that we had a lot more time to prepare for RLS than we ever had for CBILS or CLBILS. And so when we launched RLS, let’s say it was much more of an additional scheme again, and also, the, let’s say the demand was significantly less than it was for the other three schemes. So it was a very different, it was a very different environment already back then, which was a year after the start of the other schemes, roughly.

Counsel Inquiry: And as you say, there was more time to be able to consider the design of the Recovery Loan Scheme in comparison to the previous guarantee schemes which had come before it, where –

Mr Reinald Monchy: Yeah.

Counsel Inquiry: – certain trade-offs would have been made.

Just in terms of, I suspect, the fortune of having those schemes come beforehand, from the British Business Bank’s perspective, what lessons do you think had been learned by that stage which were then implemented into the Recovery Loan Scheme which enabled it to perhaps be designed in a way that was more robust?

Mr Reinald Monchy: Well, some of the lessons were, for example, I’m not sure it was necessarily a lesson learned but there were some differences. For example, there was no Business Interruption Payment in RLS which made, for example, a significant difference, in terms of the demand that we got.

The – there were some other tweaks. It was also that the, the – let’s say there was no Bounce Back scheme anymore, there was no CBILS scheme anymore. So we got the feeling that there’s also a lot of businesses who in a way had the funding they needed for that short term. So when RLS started, there had been quite a lot of demand for the other schemes, obviously, before the – before it was going to end, because there was still, especially for CBILS, you still had the BIP, which was not going to be the case for RLS.

So when RLS started it was almost like it was a more normalised scheme along the lines as you would have done in a less severe crisis situation.

Counsel Inquiry: And is it correct that under the Recovery Loan Scheme, a two-stage accreditation process was adopted?

Mr Reinald Monchy: Yes, that’s right. We had – let’s say we changed our accreditation process. So under CBILS, we had to do things extremely quickly, and then we accredited people for – or sorry, delivery partners for RLS, in some cases we accredited them, we had to go through the process again to be absolutely certain that we didn’t miss anything during the early days of CBILS.

Counsel Inquiry: And you mention in your statement that the Recovery Loan Scheme is potentially a template for schemes going forward. Do you still have that view?

Mr Reinald Monchy: Yes, I still – I still believe. And of course it’s now – differences or changes were made in RLS, as well, when we moved from what we call RLS 1 to RLS 2 and then RLS 3, and then the Growth Guarantee Scheme, so tweaks were made, but big picture, that’s what – it looks very much like the current Growth Guarantee Scheme. And I think the current Growth Guarantee Scheme is – would be a good starting point if we ever have a situation like this again or a situation where we need to get funding very quickly to a large number of small businesses via a large number of delivery partners, because we have 60-plus delivery partners in RLS. So if we had to scale it up then we already start with quite a good base of different types of delivery partners.

We have the large banks who are participating, we have the specialised smaller banks participating – not all of them but many of them – we have the non-bank financial institutions participating, and we have the community development financial institutions are also – a large number of them are also accredited to RLS. So we have a very good mix across the different types of lenders, which is important, because the market that is being served by the large banks, for example, is very different from the market that is being served by the CDFI sector, for example, or the non-bank financial institutions.

So if you want to have a good spread and covering most of the market, it’s important that you have these different types of lenders accredited to your scheme. And I think the current Growth Guarantee Scheme is a good mix of those different types of lenders.

And actually also the percentage of lending done under the Growth Guarantee Scheme by the non-banks and the specialised banks is actually quite high, which means that there is an area covered of the market which is typically, let’s say, the more specialised borrowing, if you will, small ticket specialised, of course, borrowing, which is important that you do reach those markets as well, if there is a crisis.

Counsel Inquiry: And just picking up on one of the things you said there about having a range of lenders already on board, and that being helpful, I think that accords with what you mention in your statement, that what became an issue with CBILS was that there was a one-size-fits-all approach in relation to lenders which quickly became an issue as it impeded on the speed of delivery.

Mr Reinald Monchy: Sorry, could you repeat the question? Sorry.

Counsel Inquiry: I was just commenting on the point about having, as you said, a range of lenders on board, as is the case with the Recovery Loan Scheme. And in fact that chimes with a comment in your statement about one of the issues with CBILS was that a one-size-fits-all approach had been taken, which actually impacted delivery in relation to –

Mr Reinald Monchy: Yeah, and CBILS, CBILS covered a specific area of the market, which wasn’t very well covered by the Bounce Back, by the types of lending which is done by Bounce Back, which I’m sure will be discussed with my colleague. So the – yes, the short answer is yes.

Counsel Inquiry: Thank you.

I want to move on now to just look at the way in which the business support schemes were monitored by the bank, and that was done via the lender data sharing portal within the Guarantee and Wholesale Solutions guarantee platform; is that a structure that you’re familiar with, a mechanism?

Mr Reinald Monchy: Yes, that’s our platform. That’s the platform that receives the data, that has received the data from all, let’s say, the three Covid schemes and also RLS, and it’s still being used for the Growth Guarantee Scheme, yes.

Counsel Inquiry: And the Inquiry’s understanding from the British Business Bank’s evidence on the way in which this platform was used and the difficulties in relation to the earlier schemes like CBILS was this inherent difficulty with lenders having to manually input data around the facilities.

Mr Reinald Monchy: Yeah.

Counsel Inquiry: Just elaborate on what that difficulty was.

Mr Reinald Monchy: Yeah, sure. Well, that was a very important point, because under EFG, if you’re a lender, and you were accredited, you were one of the 42 lenders or so, you were accredited for EFG, you were probably typing in this information for 10, 20, 30, 40 loans, perhaps, per year. It’s all right if you do that manually. If you’re talking about thousands and thousands of loans then it’s not all right to do it manually, (a) it takes forever but (b) it’s also very prone to mistakes.

So what happened, or what was being built in BBB during the crisis is that we have what’s called an API, which is a direct link of between the large systems of the lenders and our system, so that the data could be uploaded automatically. And that was not in place on day 1. It took a while to build. It was only built for those lenders that actually created – had very, very large volumes of loans being done under CBILS.

We also allowed, there were actually three ways of providing data to our systems. The other way was that they just provided us, I believe it was CSV files, but I would need to check what the format is, but they could also provide us files that could be uploaded in our system, which was sort of the mid level.

Then there were the very small lenders who only did a couple of loans per week or per month. They could still do it in – they could still put the information in manually in our system. So there are three layers: manual, via files, or via an API. But if you think about, especially for Bounce Back where you talk about 1.5 plus or 1.6 million loans, it was just impossible to do that manually.

For CBILS with more than 100,000 loans, it was very challenging as well, if they all had to be done manually.

So that was quite a fundamental change and we didn’t have this in place on day 1 and that was one of the challenges that everybody obviously was complaining about, or not everybody, I mean the lenders were always complaining about because it was not practical to run it that way.

Counsel Inquiry: Yes. As you say, it became impractical for high-volume lenders to be able to enter the data manually. It wasn’t only time consuming, you explain in your statement, but there – the, sort of, reality and the impact of it was that there was a delay between lending and data becoming available on the platform?

Mr Reinald Monchy: Yeah.

Counsel Inquiry: But also, there was an increased risk of data error via the manual process that existed?

Mr Reinald Monchy: Yes, that’s right.

Counsel Inquiry: You mentioned in your answer that the platform itself had existed for use with the EFG scheme?

Mr Reinald Monchy: Yeah, that’s right.

Counsel Inquiry: And between that time and the loan guarantee schemes being established, so CBILS to start with, is it correct that it was never envisaged that there would be that sort of volume, and therefore that’s why, perhaps, it wasn’t scaled up beforehand?

Mr Reinald Monchy: Yes, that’s right. And that was one of – one of – well, there were many things that – but it was one of the things that kept me a lie – almost – awake at night, because the system wasn’t necessarily built for that kind of volume. It all – it all works, and we had some excellent people supporting us, and we had excellent – a person in my team, and she run it all for – she organised this all properly and – but that was a risk that had to be – that had – which really needed tending to. So the system had to be modified and changed.

Counsel Inquiry: Yes.

Mr Reinald Monchy: And that was – yeah, that was – that was one of the risks at launch.

Counsel Inquiry: And during the operation of CBILS and CLBILS, you mention in your statement that the bank frequently provided the Treasury with data to allow Treasury to closely monitor the functioning of the schemes. Was that essentially a workaround? I mean, how else –

Mr Reinald Monchy: Yeah.

Counsel Inquiry: – or was that ordinarily how data would have been shared between –

Mr Reinald Monchy: Yeah.

Counsel Inquiry: – the bank and Treasury?

Mr Reinald Monchy: Initially, the Treasury or – or government got the information from UK Finance, and UK Finance got it from the banks on a more aggregate basis, because our systems, we did – we did get the information in but we didn’t get it in on time. So it took a while for our systems to be current, if I can call it that. And once that was the case, obviously our data was much more granular, and it was a loan-by-loan data, and – so once we had that data, we could – well, then our data was better than what could be provided on a – on an aggregate basis, but by the lenders to UK Finance.

But that said, that wasn’t in place on day 1. So it took a while for us to get – to get that data flowing into our systems properly.

Counsel Inquiry: And as far as you were aware, were UK Finance, I think, also sharing data directly with the Treasury –

Mr Reinald Monchy: They did, yeah.

Counsel Inquiry: – or was it being filtered through the bank and then going to Treasury?

Mr Reinald Monchy: No, I – if I recall correctly, it is six and a half – it’s almost six years ago now, or five and a half years ago, but if I recall correctly, they gave it directly to them. Yeah.

Counsel Inquiry: And you mentioned a short while ago the API, and that’s the platform application programming interface?

Mr Reinald Monchy: That’s right.

Counsel Inquiry: And that was created in response to the difficulties we’ve just discussed with the manual nature of the lender portal, and that wasn’t operational until July 2020. That –

Mr Reinald Monchy: Yeah, that took a while. Some lenders were quicker than others. Some lenders were, let’s say … How shall I put this? Some lenders were – had IT systems which were – which were easier to – I guess, to tweak than it was for others. So it did not all happen at the same time but we worked with the different lenders to get them all – when I say a bit different, the lenders which – which provided high-volume lending, to get them all with the working API. But it’s not that it all happened on the same day. It’s like this, we sort of – we hooked them on as and when they were ready and as and when we were ready for it.

Counsel Inquiry: Yes, and in fact you say in your statement that the reasons accredited lenders may have been unable to integrate the system may, for example, be due to technology and cost constraints. So perhaps some lenders will be using it and some won’t.

Mr Reinald Monchy: Yeah, and cost constraints, I think if you were a very large bank, I presume the cost is something they will just do. But if you are sort of in the mid-level, then it becomes – you need to balance the two out: is it really necessary to build this or is it not really necessary to build this? So, for some lenders, they probably thought, well, providing files is all right. And all those decided to go ahead with the API route.

Counsel Inquiry: And the programming interface system, it continues to be used to date, is it?

Mr Reinald Monchy: The API system for RLS, I would need to check with my colleagues whether it’s currently active or not. But – we could activate it quickly if necessary, but I would need to check if it’s currently being used, because the large lenders, the high-volume lenders, have a relatively small percentage of – relatively speaking, a small percentage of the Growth Guarantee Scheme. If you look at the current Growth Guarantee Scheme, a lot of the lending is – is actually done by the non-banks and by the – by the more specialised banks.

So I would need to double-check with my colleague.

Counsel Inquiry: Thank you.

Just looking ahead, in terms of, sort of, monitoring of business support generally, in your view, would it be a case of standing up the interface that we’ve just spoken about now and making sure that it’s capable of dealing with potentially large volumes, or do you consider that an entirely new system needs to be created?

Mr Reinald Monchy: I think at the moment we can adjust the system, and – and make sure that it remains fit for purpose.

Like any system, at some point we would need to think about to replace it with something probably more modern, but I think at the moment, it’s fit for purpose.

Counsel Inquiry: Thank you.

I want to just look now, finally, at some recommendations and discuss those with you in terms of looking forward at the event of a possible future emergency. In particular, to start with, in your statement, you reflect that:

“Looking back on the early days of the crisis, [you] do think that things could have been done better in terms of preparing the organisation for a crisis such as this one. We now have the infrastructure in place to deal with a crisis much better than we did in February 2020.”

And in part you refer, I suspect, to the Growth Guarantee Scheme being a reason why the bank is in a better position –

Mr Reinald Monchy: Yes.

Counsel Inquiry: – in terms of preparedness.

But you also state that:

“… it is essential we keep our current guarantee schemes active … but also to have the option of scaling them up.”

So do you envisage perhaps the Growth Guarantee Scheme, or perhaps a scheme, being ready and available to be taken off the shelf and stood up if there is another emergency and making sure that it can be scaled up if necessary?

Mr Reinald Monchy: Yes. If it was up to me, we would have a permanent Growth Guarantee Scheme, which is always there, which is such – which is structured in such a way so that you can scale it up if necessary, and that’s why, as I mentioned before, we have 60 or so delivery partners accredited to the scheme. And they are familiar with the scheme.

And what’s really important, especially for the larger lenders, that they have the processes in place for this to work. The moment you stand the scheme down, what happens, it’s almost like an aeroplane. If you stop flying it and you put it on the ground, if it’s a large aeroplane, at some point it won’t be able to fly anymore. The same is true of these schemes: if you stop it, then the infrastructure will evaporate with all your different delivery partners. And if you then say, “Oh, can we please use it again”, then actually all the people who were used to work with it and who know how processes work and everything, they will have gone off and do something else, and the knowhow will disappear very quickly.

So that’s why, if you want to have a scheme – and at the moment, the Growth Guarantee Scheme has a very positive impact. There’s a strong economic reason for having the scheme in the first place, but if you keep it – one thing that we should be doing, as well, is to have the option value, if you will, that if there is another crisis, that we can very quickly scale it up.

I do not think that the current ENABLE guarantee programme would work in a very short term if you have to scale it up very, very quickly because these are bespoke transactions for – that you execute for different delivery partners. So it’s – it works slightly differently.

It’s very targeted, and – but it’s not something that you can say across the board, “Okay, let’s scale it up tomorrow” because that will take more time to execute.

So I think we need several types of guarantee schemes that we can stand up, and one that you can stand up very quickly and the one that you can stand up very quickly, if necessary, or increase very quickly would be something along the lines of what we currently have which is the Growth Guarantee Scheme.

Counsel Inquiry: And, in effect, the Growth Guarantee Scheme could in future be what the EFG was during the early loan guarantee schemes during the pandemic?

Mr Reinald Monchy: That’s correct.

Counsel Inquiry: So essentially some sort of existing, robust infrastructure that could be built upon?

Mr Reinald Monchy: Yeah, that’s correct.

Counsel Inquiry: Mr de Monchy, do you have any other suggestions or reflections that you would like to share that haven’t already been covered during your evidence?

Mr Reinald Monchy: Yeah. I think as a general point, ideally, as much time as possible to prepare is really important, because these things take time to execute properly. That’s one thing. The other thing is that – and we are doing this, but it’s very important that we maintain a very close relationship with our delivery partners. At the moment, there’s a lot of emphasis obviously on equity, for good reasons, but we also need to make sure that we have sufficient emphasis also on the debt side and the granular debt side, which the bank is doing, but I think it’s important that we continue that.

And then, having a 100% guarantee or a Business Interruption Payment is an important instrument, but probably more of a last resort, and that’s something as an option, but it is more of a last resort option, I would think.

Ms Dhanoa: Thank you, Mr de Monchy. Those reflections are incredibly helpful.

Thank you, my Lady. I don’t have any further questions and I don’t believe we have any approved Rule 10s.

Lady Hallett: We don’t. Thank you very much, Ms Dhanoa.

Thank you very much indeed, Mr de Monchy, I’m really grateful to you and I’m sorry we had to keep you over lunch but your evidence has been very helpful to the Inquiry. So thank you for all that you did to provide the written statement and now your oral evidence. Thank you.

The Witness: Thank you.

Lady Hallett: Mr Wright?

Mr Wright: My Lady, the next witness is Richard Bearman.

Mr Richard Bearman

MR RICHARD BEARMAN (affirmed).

Lady Hallett: Sorry for keeping you until mid-afternoon, Mr Bearman.

The Witness: No problem at all.

Questions From Richard Wright KC, Lead Counsel to the Inquiry for Module 9

Mr Wright: Mr Bearman, you’ve provided a statement to the Inquiry which is INQ000653968, and you’ve provided that in your capacity as Co-Chief Banking Officer at the British Business Bank; is that right?

Mr Richard Bearman: That is right. However, my job title has changed since the submission, but essentially that is correct.

Counsel Inquiry: All right. Thank you very much. And our interest is in obviously what you were doing during the pandemic, and in particular in the fact that you, as we understand it, took responsibility for the Bounce Back Loan Scheme; is that right?

Mr Richard Bearman: That is correct.

Counsel Inquiry: From the Bank’s perspective?

Mr Richard Bearman: That is correct.

Counsel Inquiry: Just a couple of words before we look at that scheme, in terms of how you saw the Bank’s role generally during the crisis. And you described it in your statement as really being an interconnect between lenders, by which I assume you mean commercial lenders, and government; is that right?

Mr Richard Bearman: Yes, I see that as being correct. I think our role, it was important to maintain that relationship between the lenders and the government, and I think also our role was also to, at the appropriate times, to represent the sort of customer, the businesses, as well, to make sure that almost those three relationships were almost interconnected from a thinking perspective and from an implementation as we – as the schemes went live and we put controls in place, and so on and so forth.

Counsel Inquiry: Okay. And in that capacity, really representing all those different perspectives, bringing all that together, if you like, also, you had a responsibility to, wherever possible, ensure that public money was protected; is that right?

Mr Richard Bearman: Yes, yes, I see that as a key responsibility. I think there was a, you know, Bounce Back Loans was clearly a huge scheme with a lot of public money at stake, and a key part of our role is to ensure we protect public money and ultimately, where necessary, hold lenders to account to consider how we can minimise losses, so on and so forth, during the scheme’s life. But I think also, as I say, to make sure that the lenders and the commitments made to them are represented back into bank and to keep the positive momentum of the scheme going.

Counsel Inquiry: And you’ve put it very pithily, if I may say so, in your statement, but it might have been said in 2008 during the global financial crisis that the banks needed the government, but in 2020, it was very much the government needing the banks, needing the banks to lend to maintain liquidity and keep businesses afloat?

Mr Richard Bearman: Yes, I agree with that. I think, once the decision was made to have loan schemes of this scale, I think the government needed the infrastructure and the operational capacities of the bank, of the banks and the lending community, to deliver the schemes.

Counsel Inquiry: Before we look at the Bounce Back Loan Scheme, can I just pick up on one issue about structures in which the bank was operating, and accountability, really. I just want to ask you for your view about this.

The government department that was responsible for the bank, the sort of sponsoring department, if you like, was BEIS. Bounce Back Loan Scheme policy was coming from Treasury. The responsible accounting officer, therefore, was in a different department to the department that was really setting the policy. From your perspective, did that lead to some confused lines of accountability as to who was responsible, or not?

Mr Richard Bearman: I don’t think, during the heat of that period in April through May and the early months, I don’t think so. I think it was very clear where the decisions were being made. We were operating across government at extreme pace. I think having clarity decision making, through Treasury, I think, was actually helpful.

I think it did provide – it did create some almost sort of governance sort of challenges and I think it was important that once the schemes were live, some of that was essentially sort of, sort of tidied up and dealt with. But I think in that key period, it was very clear who was leading on the scheme, who the decisions were coming from, and it perhaps may have been uncomfortable at times for those within BEIS, but I think, from a decision making and doing this at pace, I think it probably helped.

Counsel Inquiry: We heard some evidence yesterday from Sir Charles Roxburgh, Second Permanent Secretary at the Treasury, on this issue, and he – his evidence broadly aligns with yours. But one suggestion he made was that if there was a concern about accountability, public accountability to Parliament for money, then one suggestion was, well, temporarily accounting officer responsibility could be moved to the Treasury, but he was very much of the view that the bank should continue to sit under BEIS.

Where do you yourself sit on that?

Mr Richard Bearman: I don’t think it’s for me to opine about where we sit in the long term. I think during that period you – potentially you could have done something along those lines. But I’m not sure it would have had a huge impact on the way we operated.

I think I referenced in my statement that it was a little bit sort of “Blitz spirit” at the time. We were all in this together. I think BEIS were – were a voice in the room, but there was clear leadership coming from Treasury, and I think in that – in that particularly intense period through April into May and perhaps into June, I think we made it work.

And so I think, sort of, a moving of where the accounting officer sat probably wouldn’t have had a direct impact in terms of delivering the scheme at the pace that was required.

Counsel Inquiry: So day-to-day, operationally, you don’t think it would have made any real difference?

Mr Richard Bearman: I don’t think so.

Counsel Inquiry: No, all right.

Well, let’s move on then, to the Bounce Back Loan Scheme. Just a bit of context: announced on 27 April 2020, it was going to have a different name, it was going to be the Coronavirus Small Business Interruption Loan Scheme –

Mr Richard Bearman: Correct.

Counsel Inquiry: – but it became the Bounce Back Loan Scheme. And we understand that the primary motivation, the driver of this scheme was the need to substantially increase the volume of loans that were being delivered at the lower end of the market, if you like, speedy delivery of money to small enterprises.

And I want to, against that background, come on to the Bank’s capacity to deliver that scheme at the time it was first suggested. And really, my questions are directed at two things. At the time, did you actually think – we know you went on to do it, but did you actually think you had the capacity to deliver a scheme of that scale, the number of applications, at the time this was first mooted? Or was it a sense that you were the only show in town, in that there was no other body that was going to be capable of doing this for government? How did it feel to you?

Mr Richard Bearman: I think probably a bit of both. I think – I don’t think we appreciated at the time actually the scale it was going to move to. I think some of the early – so, you know, we knew it was going to be large. We knew it was going to be, sort of, of considerable scale and likely to be unlike anything that we – we had seen in – actually in the UK before. I think the early – the early sort of forecasts were talking about 800,000 loans to be provided, and, as we know, it was considerably more than that.

I think there almost wasn’t a lot of time to sit back and think about almost that – that longer-term consequence. It was – it was very much one of those roll your sleeves up and get on with it and try – and work through it. And so the bank was stretched. Reinald, who you’ve just heard from this morning and this afternoon, his team was fully stretched, which is one of the reasons they bought myself and my team in, but also because my experience and my team’s experience was in volume lending, and at the smaller end of the market, both previous to joining the bank and at the bank, and we had expertise in that team from the Start Up Loans team of – of recoveries activity, of – of, sort of, counter fraud activity.

So it was the one team that was best placed in the bank to bring their expertise to this particular loan scheme.

But the second part of your question, I think there was an element of that as well. It was always: well, if not us, who else? And – and I think, without being, sort of, corny, I think go back to that – there’s that Blitz spirit, where you’re working together, with – with Treasury, with BEIS, with others, to kind of – okay, we – we – it felt like the – the CBILS scheme wasn’t delivering what was required at that small end, that – that – you know, the noise coming from the industry groups that – that small business were running out of cash and it was kind of: okay, we’ve just got find a way to do this and do it as well as we possibly can.

Counsel Inquiry: I mean, the way you put it in your statement is really that – on the “If not you, who?” question, there was nobody, really, no institution in the country that had experience in financial services of something like this, because it just hadn’t been done before, the scale?

Mr Richard Bearman: Not – not at this scale and not in this way – (overspeaking) –

Counsel Inquiry: No –

Mr Richard Bearman: – the guarantee scheme.

Counsel Inquiry: No, so it wasn’t a case of looking about to say, “Well, has anyone got better experience?” Because no one would have had it really.

Mr Richard Bearman: Yes, I agree.

Counsel Inquiry: So, as you said, your team was running the closest thing that the bank had to a volume scheme, the Start Up Loans scheme, which was a retail commercial-type product, so it really fell to you to try to take it forward; is that the position?

Mr Richard Bearman: Correct.

Counsel Inquiry: Now, this scheme, we know, was designed and implemented in about 13 days, I think it is, being launched on 4 May. And I just want you to perhaps explain – I mean, this wasn’t 13 days in which the bank wasn’t doing anything else. There were all these other things going on that we’ve just heard about from your colleague. So resources, presumably, operational resources in the bank, were already under pressure; is that fair?

Mr Richard Bearman: Yeah, that’s very fair.

Counsel Inquiry: And what further additional pressure did having to be involved in standing this up in such a short timescale place on the bank, and how did you cope with it?

Mr Richard Bearman: So there were various elements of the bank that, because of the sort of pandemic, that were sort of slowing down and had less activity, so we were able to sort of transfer resource. So, for example, the accreditation process that Reinald de Monchy talked about earlier, you know, we were able to put some resource in there from a team that wasn’t as active because of the pandemic. But essentially, the impact was, it was really around sort of, frankly, long hours, people’s commitment and resilience, and as I say, sort of, for this scheme, it was quite clear that the teams looking after the CBILS and the CLBILS just didn’t have the capacity so we moved the Start Up Loans team into dealing with this.

We upgraded, you know, brought people up, you know, sort of not promoted but sort of gave people more responsibility and shared it out and essentially, as I say, it was all hands to the pump.

We did bring in external expertise which I’m sure we’ll come on to, through the use of PwC.

But it was an immensely challenging time, but as I say, it was one where you felt, well, if we didn’t do it, no one would, and you could see the potential risk of not delivering a scheme of this type.

Counsel Inquiry: It sounds like you were trying to find solutions all the time. Rather than looking for reasons not to do things, you were trying to find workarounds and ways to make it happen; is that fair?

Mr Richard Bearman: I think that’s fair, yeah.

Counsel Inquiry: Did you also find, sometimes you can think about a huge team and think, well, that’s a good thing, but did you find that actually having a relatively small team that was therefore very focused on the work was of benefit?

Mr Richard Bearman: I think that’s a fair comment and I think it’s also fair that, again, we may come on to this, but in the original design there was a small number of lenders that were involved in that sort of 13-day period and so I think by having a small number of industry sort of experts, a relatively small number of people and clear decision making from, as I said earlier, from a Treasury perspective, allowed us to cut through quickly and make decisions quickly, to deliver the scheme.

Counsel Inquiry: Okay. I just want to look a bit at what was happening in those days leading up to the launch on 4 May. We understand that on 20 April, Patrick Magee who was then the chief commercial officer of the bank, made you aware of a telephone call he’d received from the Treasury, he’d thought it was from the then director of financial services at the Treasury. And it was to the effect of informing him, as we understand it, that over the weekend, the Chancellor of the Exchequer had met with chief executives and senior management of some of the larger UK commercial banks, to discuss whether they could support this sort of scheme. And the advice coming back from the commercial banks to the Chancellor being passed on to you, was that yes, but only if you remove the need to have checks on business. In other words, that’s the only way they were going to be able to deliver this sort of accelerated product.

And did you understand that some discomfort was expressed about that from your side, if you like, from the Bank’s side, because of the risks that that would involve? Because this was taking quite a lot of risk.

Mr Richard Bearman: Essentially, yes. It’s the key theme of the scheme, is to deliver at the pace and scale that that central core sort of policy intent, that to do that, the removal of those checks would allow that pace and scale and ultimately it was proven to be the case, but it was apparent from day 1, and I think it was – I think – I don’t think anyone was under an illusion from day 1 that if you don’t do the checks, you’re exposing yourself to much more risk, both credit risk but then also fraud risk.

Counsel Inquiry: It might be perceived, therefore, that the commercial banks were really calling the shots in the sense that they were saying: the only way that we are going to do this, deliver this accelerated lending, is if we don’t make the checks and someone else takes the risk; is that a fair position?

Mr Richard Bearman: I wouldn’t agree with that as a fair position. I think it’s a very practical explanation of the challenge, which is if, you know, the more checks and controls and procedures you have in a lending process, the more time it will take. And then also, the other element to it is the more people that – will fail those checks, and we’re talking predominantly about credit checks. So if you have credit checks you’ll have more people that will fail those checks, and as you increasingly go deeper into the sort of pandemic and lockdown, the more difficult it becomes to pass those credit checks because you’re sort of essentially looking at, you know, the viability of the business, the affordability of the debt, and as businesses go into that lockdown, it increasingly becomes obvious that they’re not.

So there’s a sort of – I think it was a practical, sort of, sensible response to say: what’s essentially holding us up in the journey for our clients through the CBILS process is essentially those – the checking processes and the decision making we’re having to do to make sure that the businesses are viable. And so I think it was a sensible, a sensible conclusion, as long as you then accept the resulting risk from that decision, which is potential high losses.

Counsel Inquiry: So this wasn’t a case of the banks saying, “We’re only willing to help you if we don’t have any skin in the game,” effectively. This was the bank saying, “Look, we can make this happen but these are the things you’re going to have to do in order to make it happen for all good reasons.”

Mr Richard Bearman: I clearly wasn’t on those calls, but that would be my interpretation, yes.

Counsel Inquiry: Okay. And it was after those calls that Patrick Magee really tasked you and your Start Up Loan team to start thinking about: can we scale up the infrastructure? Can we deliver hundreds of thousands of loans in a very short period of time? Is that right?

Mr Richard Bearman: That’s correct, and Patrick, you know, stayed involved and was hugely supportive but yes, at that point it was very much: start thinking about how could we make this work, you know, we went through the process of thinking around is there a way of scaling up Start Up Loans, for example, what other options have we got, and ultimately, essentially, how could we operationalise this scheme if it comes to being approved and we get the instruction to move?

Counsel Inquiry: Yes, and just picking up on that, you thought first of all, well, we’ve got this reasonably high-volume scheme, the Start Up Loan scheme. Can we scale that up? Could that be a vehicle, in the same way, presumably, that CBILS had been build on some existing architecture, you thought, well, can we take what we’ve got and build on it? But was that not viable?

Mr Richard Bearman: I think we did a very quick review of that, reached out to some of our partner organisations that were involved in the Start Up Loan scheme, and while we concluded we could scale it up considerably, the two sort of blockers to it is: it was very clear, quite early on, that we wouldn’t be able to scale up to the volume that was going to be required. So, the sort of – Start Up Loans was delivering around 11,000 loans a year, and we felt that without huge structural sort of IT infrastructural changes, we could probably push it to about 100,000 loans, which was way short of what was being predicted, and then also, I don’t think we could necessarily have delivered it in the timescales that were required, so we relatively quickly discounted it.

Counsel Inquiry: And going forwards from that first call with Patrick Magee, I think there was then a meeting on 20 April; is that right?

Mr Richard Bearman: From memory, there were a number of meetings, but there was a critical meeting where, yes, we gathered with lenders and started to play through the options.

Counsel Inquiry: So this was really a sort of round table –

Mr Richard Bearman: (Witness nodded).

Counsel Inquiry: – let’s think about how we could do this, so acting collaboratively with the commercial lenders and just working it through; is that right?

Mr Richard Bearman: That is correct, yes.

Counsel Inquiry: And one of the things that was clear from the Treasury, is this right, was that the Chancellor was determined that however you did it, the money had to be delivered, the loan approved, effectively within 24 hours; is that right?

Mr Richard Bearman: Right from the outset, that was a sort of a guiding principle. We were able to tweak it a little bit further on in the scheme’s life but in that – it was very much a sort of guiding principle.

Counsel Inquiry: As a banker that might make you feel a bit weak at the knees, but how did you react to that in terms of whether that was going to be achievable, 24 hours, to get the cash out of the door?

Mr Richard Bearman: I … I mean it – it really comes back to the discussion we had a moment ago. It was very clear that the only way you could do that is to do something quite – almost revolutionary for the industry, of – to deliver the funds without having the checking processes in place that – that essentially build not just – it’s not just the checks and controls, but almost builds time into the journey to allow things to be considered and – and reviewed.

But it was – you know, it was – it was very early on apparent from speaking to the lenders they felt it could be done. I mean, they were equally – you know, we were – the chief executives perhaps were on the call at the weekend and then on the Monday we were speaking more – to more of the senior, sort of, more operational folk, and there was clearly lots of people thinking: how can we do this? Is it possible? You know, everybody fearful that there might be challenges with it.

But, again, I think there was a kind of: okay, we – we need to do this. We need to work through how it’s possible, how it’s plausible, and how we can get this done. Because it was apparent that the CBILS scheme wasn’t delivering to those smaller businesses at the pace it was required.

And it’s in my statement, but, you know, you had people like the FSB saying, you know, small businesses have four weeks of cash left, and – and the sort of – where – I haven’t got evidence of that, there wasn’t evidence, but they were not the only one. All the industry groups were saying that, you know, the small businesses, they – they’re running out of cash. And I think, logically, when you think you’re heading into this sort of likely-to-be-extended lockdown, it was logical: if you can’t trade you’re going to – you’re going to shut. So it was felt like it was a – as difficult as it was, we should work together to find a solution.

Counsel Inquiry: We heard from Sir Charles Roxburgh yesterday a similar point. This wasn’t “Could you do this scheme or a different scheme”, it was, “If we don’t do something like this, then all of these businesses are going to start to fall over”, and the consequence of inaction was as serious as the consequence of action.

Mr Richard Bearman: I think so. I know you, sort of – with hindsight, you look back and you think “I wonder if”, and you sort of think through the kind of – the various consequences, and clearly lots of mistakes were made along the way and things could have been better, but it felt like it was existential for the SME community at the time.

Counsel Inquiry: Yes.

Mr Richard Bearman: Because if you had 400,000, 500,000, 600,000, 700,000 businesses all – all failing at the same time, you sort of – the conversation is: well, what sort of economy will we have left for us when we get out at the other side of the pandemic?

Counsel Inquiry: I think it was obvious from the outset, as you said, that there were going to be high risks in this sort of scheme in terms of loss, so commercial loss and/or fraud, but this had never been done before, and so, in those early days, I mean you did your best with discussions and informal calculations about what those rates may be. And I don’t mean to be flippant about this, but was this educated guesswork as best as you could have it, where the levels of loss and fraud might sit?

Mr Richard Bearman: Not – I mean, not – not far off. I mean, I think we had points of – so I – I think it’s in one of the pieces of evidence that is there. So I did some work using our Start Up Loans as a proxy. It was – again, it was the closest thing in that it was high-risk lending because you’re lending to start-up businesses, you’re taking more risk with it, there were smaller businesses. And so we – I sort of explored that scheme and – and used it as a proxy, and then built some estimates, as did colleagues. But there – there wasn’t a lot to base our – our forecasts on.

Counsel Inquiry: No.

Mr Richard Bearman: At that stage obviously we developed methodologies as we developed the schemes.

Counsel Inquiry: Yes, that work continued as the schemes were developed, okay.

Would it be fair to say that you viewed the Bank’s role in the Bounce Back Loan Scheme to be operational? It was your function, your job, to make it happen. Policy, whether to do this or not, was being driven by the Chancellor through the Treasury, and the bank was therefore concerned with: how do we make this happen if we’re told that it’s going to happen?

Mr Richard Bearman: I sort of partially agree. I think our core role was operationalising the scheme. But I do think we also brought our expertise to bear in terms of, sort of, advising the officials to help them advise ministers. So I think there was that advisory role, and we were sort of heavily involved in terms of the – the evolution of the guarantee documents, the scheme, the principles, the sort of – the rules by which they were governed, but ultimately the decision making rested with – with Treasury and partially, as we discussed earlier, with BEIS.

And so, in that design phase, it – there was lots that was quite instructed to us, but we were able to influence and – and put – you know, ensure that there were, sort of, changes made to the scheme that we felt were appropriate, and there are other suggestions and recommendations we made that weren’t.

Counsel Inquiry: So it was an operational role, but you were using your operational experience to feed back, in a sort of feedback loop, in the hope that, where it was appropriate, policy might be tweaked to – to make the most of that experience?

Mr Richard Bearman: I think that’s fair.

Counsel Inquiry: Yes, okay.

So that was 20 April. Come 23 April, so just three days later, the bank was, I think, told at 10.45 in the morning that there was a draft ministerial submission being prepared that was obviously going to be pretty fundamental to the future direction of this potential loan scheme, and I think the bank was given less than an hour to review the draft, and provide comments.

I won’t go through blow by blow what happened during that day, but by the early afternoon there’d been another iteration of the submission, and you’d got an hour-and-a-half this time to respond, and the bank did respond. That’s perhaps an indication of how quickly this was all moving. Is that fair?

Mr Richard Bearman: Yes, I think it – it was moving at extreme pace. I mean, just to be clear, while we didn’t feed directly into that ministerial submission, the sort of – the – all the calls that were taking place before that were – allowed us to, sort of, put input into the general scheme design but – but, no, I think that’s very fair. On that day it was moving fast and sometimes almost the kind of – that governance process was always struggling to keep up. But I think, as I’ve already said, pace and scale were the driving forces for this scheme, and that was, again, a day when pace was definitely – definitely the word you’d use.

Counsel Inquiry: Did you feel that, really, whatever you had said, this was a done deal? It was going to happen. You were going to be told to get on with it. Or did you feel that you were being listened to, and that feedback was being taken on board?

Mr Richard Bearman: I think feedback was taken on board. Again, I’m sure we’ll come to it. I mean, we issued a reservation letter which shows the strength of our concerns about the scheme, and I imagine we’ll come to that later. But we were listened to. So, you know, in the – the original sort of “no controls, no tests, sort of, no checks” was very clear. And we were able to sort of make it very, you know, we very early on highlighted the fraud risk and were able to sort of get that kind of ministerial/Treasury sort of view changed so that we were then able to get minimum standard fraud checks embedded into the scheme.

So we went from no checks to having fraud checks, some fraud checks. So that was an area we were able to influence the design of the scheme. And there were other examples as we went through.

I think there was probably a point, shortly before it was announced in Parliament, where you thought, okay, this or a version of this is going to happen, we just need to make sure we do the best job of getting a commitment that we can operationalise and minimises any of the risks that we perceive there to be.

Counsel Inquiry: Is this right, from your perspective, that the only policy objective that you could detect from the ministerial submission really was this need for an increase in the speed at which smaller loan applications were being processed to deliver lending to small business?

Mr Richard Bearman: I mean, essentially, yes. But the – as I saw it there, the key policy, the key intention here, was to ensure that we got funds to those businesses that were excluded or not able to get funding, to keep them in a position where they could continue to operate and to achieve that, we had to do it at extreme pace and at extreme scale.

Counsel Inquiry: I’m just going to ask that one part of the submission is brought up on the screen, just to look at it, INQ000594680.

And could I have, please, if possible, and I’m sorry to jump ahead, but could I have page 9, paragraphs 45 and 46. This is the section of the submission that deals with fraud risk, and I’ll just read it into the record. It says at paragraph 45:

“During scheme design it will be important to consider how to minimise fraud risk, including how borrowers should be required to demonstrate that they have a genuine business, and how to deal with multiple applications from individuals with more than one active business. This reflects the fact that by comparison to other countries with similar schemes, setting up a business in the UK is far easier.

“As part of this work Government will need to define a cut-off point for eligibility, with only businesses which were established before that point being eligible to apply (and such a solution will need to be workable for unregistered businesses).”

That’s all the submission says about fraud, as against a scheme that you and your colleagues in commercial banking could all see from the outset was, putting it bluntly, risky, in terms of fraud and error. Do you think that that set out clearly enough the sort of concerns you had about the scheme and the risks involved in it?

Mr Richard Bearman: I, actually – I actually think that what this document or what these two paragraphs do, they do hone in on two of probably the biggest areas of fraud risk. So, you know, we could have a debate, there are other fraud risks out there, but these are two of the areas that I think throughout the scheme’s life were a particular challenge.

Counsel Inquiry: I don’t want to cut off your train of thought but just so we can understand that while you’re dealing with it, those being first, what, the risk that people would make, multiple applications under different businesses –

Mr Richard Bearman: Yes.

Counsel Inquiry: – to different lenders, therefore significantly over-leveraging themselves and beyond their ability to repay?

Mr Richard Bearman: Correct. So very early on, we – this was one of the risks that we sort of identified as being a key fraud risk of the scheme. We instructed PwC. They did a very quick review with the lenders before the scheme launched. It came through that review as a key risk, and in fact it’s a risk we reference in our reservation notice. So it was right from the outset seen as a risk where, at launch, there was unlikely to be any way of actually having a control in place to stop this particular risk.

And because of the ability to have sort of accounts up and running, almost sitting there dormant, and the sort of knowledge that you have company formation agents and you’ve got, sort of, you know, that’s just – and allowing for it – or it was very much allowed, that there’s potentially quite a large reservoir of dormant accounts that could come into play. And if they could access multiple banks, they could get multiple loans.

Counsel Inquiry: Okay. And then this point about eligibility, this is what, that those who were determined to commit fraud as opposed to applying for money that they might not be able to repay, but fraudsters could just set up lots and lots of companies and make applications for lending?

Mr Richard Bearman: Yeah, so that was sort of another area where we were able to put something into the guarantee, and a condition upon the lenders that they would have a process to actually identify this, but it was very key that if there was a business, that it had to be operating by a specific date, the business had to be set up so that, exactly that, that while there may be lots of dormant companies that were already started, that we weren’t almost adding to that problem by allowing new companies to be formed and then them sort of potentially accessing the scheme fraudulently.

Counsel Inquiry: Okay. I just want to pick up one other paragraph from this submission, it’s paragraph 8, actually, if we could go back to that, page 2 of it. And we see there sort of in the middle:

“That there are several other routes which could be explored to further simplify the scheme or otherwise increase pace – these could be delivered instead of, or alongside, a new scheme.”

Now, the scheme there is CBILS, the scheme that wasn’t really delivering at that time. And I just want to pick up on that and get your view about it. You’ve talked about the need for something to happen quickly and this sort of Blitz spirit of people coming together to make it happen. But it appears at least from that part of the submission that there were alternatives, and I just wonder whether you think sufficient regard was had to those alternatives rather than taking this sort of high risk approach, and if you do, why this remained sort of the best approach?

Mr Richard Bearman: As I said, I obviously, as we said earlier, I didn’t input directly so I can’t say what they were specifically referencing to. However, through the conversations we were having with Treasury and BEIS and others, the sort of – the other options that were being explored around the time again, Start Up Loans we discussed but discounted quite quickly. Probably the big alternate that was discussed at this phase was actually not loans at all, but grants.

So there was a number of conversations where it was actually: should it be a loan, should it be a grant? And whether it was discounted with sufficient thought or not is difficult to say, but it was discounted essentially on the basis that there were other – you know, there were grant schemes within the system already.

I think the realisation that actually with the loan, even with high risk, you’re, you know, you still anticipate the majority or a good chunk of that to come back, whereas obviously with a grant, you wouldn’t. And the sort of views that things like fraud risk were equally potentially appropriate for grants as they were for loans. So that was one other option that was considered and discounted along the way.

I think there were also conversations about whether there could be changes made to the CBILS scheme. Conversations around particularly the lower end, but this is where the Consumer Credit Act comes into play, because the – we ended up – they ended up in a situation where we would remove that as a consideration for Bounce Back Loans. But a lot of the lenders found it quite complicated to think about how they had a scheme where actually then you had CCA loans within it and/or a dual scheme where perhaps some did and some didn’t.

So it was just an overly complicated solution to try and further develop CBILS, whereas it ended up, I think, being this as the decision because it, by its very nature, started to look simple and therefore easy to deliver at speed.

Counsel Inquiry: And interesting you’ve come back to that, delivery of speed. I asked you earlier about the policy objective that you could identify from the submission, and that was – the only one you could really identify was this need for speed. And so it appears, really, that, as I understand your answer, it was that driver, this need for speed – there were other ways you could have delivered money, but none of them would have seen it being delivered at speed in this volume; is that – is that right?

Mr Richard Bearman: I – I think the second point is just as important: at the volume.

Counsel Inquiry: Yes.

Mr Richard Bearman: I think there are other options, Start Up Loans, couldn’t deliver the volume, possibly not the speed. I think if you’d made further adjustment to CBILS, it would probably take longer and – so I think it was – it was speed and volume.

Counsel Inquiry: Yes. Because when you put those two things together, they really began to dictate that the only way of doing it was through something new, bold and innovative that hadn’t been done before?

Mr Richard Bearman: I think that’s fair.

Counsel Inquiry: Yeah, okay.

I’ll just start another topic. We won’t have time to finish it before we take a break but I’ll make a start because there’s quite a lot I want to cover with you and I’m trying to motor as quickly as I can.

Fraud risks and operational challenges, really, is the next topic. You’ve spoken about those, and I – and you also mentioned PwC, PricewaterhouseCoopers, and I just want to understand why the bank decided to bring PwC, what they could bring to the table in the context risks and challenges that you’ve already spoken about.

Mr Richard Bearman: So, because it became very apparent very quickly that fraud was going to be this – this challenge of the scheme, it – we wanted to get an independent view of that. And as I’ve said, we also were resource constrained, so to bring resource in, to, sort of, give us a little bit more firepower to investigate. And so we instructed PwC to, you know, at pace to engage with the lenders to explore a number of areas, to help us understand actually the viability of and the impact of no fraud checks or some fraud checks, what they would likely to be doing – you know, the potential benefits of those fraud checks, and then also to engage with the lenders to really, sort of, work through them to understand: okay, if this scheme in this format came to life, what are the key risks we have to worry about?

So it was a way of having a very quick – essentially a fraud risk assessment with the lenders’ expertise involved.

We – we went with PwC. Some were very pragmatic, because they were already involved in the CBILS scheme. So they already had a sort of contractual relationship with us. They would have had an understanding of the schemes and understanding of the bank, so that allowed us to bring them to bear quickly, and with a lot of embedded expertise and knowledge about the scheme and us as an organisation.

And they also had a good understanding, because of their relationship with the – with the high street lenders particularly, of how banks operate and how the schemes work.

So it was – it was practical to bring them in, because we could bring them in quickly, and I think they brought the right level of almost third-party expertise to help either challenge some of our assumptions or to better inform us about the right way to progress, and potentially what additional controls we could bring to the scheme to minimise fraud once it had launched.

Mr Wright: Okay, thank you.

Well, we will pick up after the break, if we may, what some of those developments were.

My Lady, is that a convenient moment?

Lady Hallett: It is, and I shall return at 3.30 – no, 3.15, sorry. You looked slightly worried there, Mr Wright!

Mr Wright: I was slightly shocked.

Thank you.

(3.01 pm)

(A short break)

(3.15 pm)

Lady Hallett: Mr Wright.

Mr Wright: My Lady, I hope you can still see and hear us.

Lady Hallett: Yes, thank you.

Mr Wright: Thank you.

We left before the break talking about PwC coming on board and the assistance they could give and I just want to pick up on that now looking at an email, please, which is INQ000594688.

This is from Patrick Magee, is that right?

Mr Richard Bearman: Yes.

Counsel Inquiry: And we see there:

“My comments attached. I am not sure where the idea of removing KYC came from …”

KYC is know your customer?

Mr Richard Bearman: Correct.

Counsel Inquiry: That’s a banking convention, effectively?

Mr Richard Bearman: It’s a sort of standardised phrase for the checks you do, particularly when you’re onboarding a customer to make sure you know who they are, et cetera, et cetera, and also you tend to do them at regular stages during the relationship to make sure that KYC, that know your customer information, is up to date.

Counsel Inquiry: “… that is the one set of checks that stays. It is fraud and credit checks that HMT seem to be cautious about including, they are insistent previous CCJs are fine, and we had to push hard to have basic fraud checks allowed.”

So is the position, as set out in that email, as you understood it, that the Treasury was keen there should be no checks of fraud and credit, and that the bank was pushing back against that and saying, look, there are basic things that we really need to keep because they won’t delay delivery of money but they’re essential?

Mr Richard Bearman: Essentially, that’s correct. I think there was – a little bit of nuance there is, we were sort of talking about things in the knowledge that they might delay a little bit, and then that was back to the question of the 24 hours, but essentially you’re correct, that from my recollection, the starting point was no checks at all and we were pushing to try and make sure that there was some, as I say, minimum fraud standard checks were embedded in, which we were able to succeed with, and we did have sort of long conversations about the CCJ.

May I just elaborate a little bit about credit checks, if that’s helpful?

Counsel Inquiry: Yes, of course.

Mr Richard Bearman: One of the areas in – and I actually look back and think, perhaps one of the areas I wish I’d sort of perhaps spent more time trying to talk it through, I think while we had fraud checks in there, I think it perhaps wasn’t fully understood at the time, actually how important credit checks were also to stop fraud, because if – for most of the banks, these checks, they’re all intertwined and they’re all embedded with each other and so if you’re going to lend money to an organisation, you will spend time looking at affordability, looking at the turnover, looking at the nature of the business, looking at sort of transactional history to understand can that business afford the loan, and so by doing that, you therefore also find out if there isn’t turnover, or if there is a problem or if there is an issue.

And I think, while CCJ was a good example where we spent time trying to explain yes, it’s a credit check but it could be very helpful in stopping fraud, we had a lot of conversations at that time about checks and what we could and what we could ensure were kept and what weren’t. But I think it’s important to say that in a BAU scenario, actually these things are all intertwined, they’re all interconnected, and I do think, with retrospect, that as I say, I probably could have done a better job to ensure that that was understood.

Counsel Inquiry: Understood, yes, but if – well, what credit checks do you think that you could have retained – or not retained, because I suppose the scheme didn’t exist, but introduced, that would have had that benefit but wouldn’t have slowed down delivery, in hindsight?

Mr Richard Bearman: It was very clear we weren’t going to have any credit checks, but I think the one – the one area which we probably spent a lot of time talking about, and we – and this had continued after the scheme had launched, was CCJs, so county court judgments.

Because I had a lot of conversations about, yes, they are there as a sort of credit check. They are used by a lender to, sort of, see if something had happened in the past where that business or – you know, there was some sort of judgment against them where something had gone wrong in the past. But we were, sort of, making the point that perhaps, surely, there’s a number of CCJs that perhaps imply fraud as well or imply, perhaps, poor behaviour.

And that was one area where, again, I – I do think, you know, if we’d – if we did this again in the future, I think having some sort of minimum number of CCJs, you know, let’s say three CCJs, if you’ve got more than three CCJs on your record, either it is declined or further investigations are done.

Counsel Inquiry: All right. So that wouldn’t have slowed down delivery of support in a lot of cases but in those cases where there were CCJs, it would have enabled that extra layer of security?

Mr Richard Bearman: It would have done. It would have done.

I can’t say for sure it wouldn’t have slowed it down, because in the end we didn’t do it, but I think it could have been delivered within the time frames.

But I can see the counterpoint from a Treasury view, which is: every time you put a check in you are adding the risk of slowing it down, and you’re also adding the risk that there will be a population of genuine businesses that fall into the thing where they’re kind of, “Oh, maybe there’s a problem here”, and their debt is slowed down, even though they’re genuine. So every check adds a layer and adds complexity and adds that risk. And – and as I say, that wasn’t one that we were able to – to convince officials that we should have that put – put in.

Counsel Inquiry: It isn’t the case, is it, that the Treasury was anti-checks per se, as we understand it, it was that the Treasury was anti-checks that would have the effect of slowing down delivery; is that – is that right?

Mr Richard Bearman: I think anti-credit checks.

Counsel Inquiry: Per se?

Mr Richard Bearman: Per se.

Counsel Inquiry: Okay.

Mr Richard Bearman: I think. But – but, would be – we were quite happy – as we demonstrated, because we were able to put checks in – happy to have checks in place that related to fraud if they could be done with the loan still being delivered for the majority of applicants within that 24-hour period.

Counsel Inquiry: Okay, thank you.

So you were working with PwC, you were trying to identify things you could do to minimise risk, but not get in the way of speedy delivery. But ultimately, did you remain concerned that you would need to operate under a ministerial direction, given the level of risk that remained in this proposed scheme?

Mr Richard Bearman: So the actual decision-making discussions re ministerial direction were predominantly at our, sort of, CEO, Patrick Magee and board level so I wasn’t party to those conversations directly, but I have obviously read the minutes and explored that as part of this submission, and so I think essentially you are right. I think these concerns led to that debate and discussion around reservation notices and the right level of ministerial direction.

It was more than just the fraud, it was about propriety, ie, the bank has sort of embedded really core objectives, and so there was also a concern around, you know, our objective of ensuring competition in the marketplace. So that was a concern. The value for money, which was driven by the fraud and potential credit losses. And then the third area was around the ability to deliver and the pressures on us and the lenders to deliver.

I think there was a fourth theme that kind of ran through there a little bit which was also about consumer protection and the risks of removing the CCA from this scheme. Again, it allowed speed and volume delivery, but it was removing consumer protections. So that was also a theme that ran through that debate and discussion.

Counsel Inquiry: It’s important you should stress those other things, this wasn’t just about fraud or defaults, potential defaults on loans, but can you just expand a little on the point about it being part of the Bank’s obligation to promote competition and how you viewed this scheme potentially as being anti-competitive, how it impacted on that?

Mr Richard Bearman: I think anti-competitive is quite a strong word, but I think there was that concern running through, that it was clear from the outset that we probably wouldn’t have, if we went live with this scheme, the volume of lenders that we had in the CBILS scheme because there was sort of certain levels of size and scale that was going to be required.

And also, the pricing of the scheme was, you know, 2.5% fixed rate was a price that potentially would exclude certain providers. So there was a concern that if you had a scheme at scale with only a small a number of providers, that that would put at risk that objective of ours, to encourage and support competition across the marketplace.

And I think it was – it was a valid concern at the time.

Actually, in retrospect, I’m sure there will be organisations out there that would disagree with me, but I don’t think it had as big an impact as actually we feared. So in retrospect, perhaps that wasn’t one area that was as big a challenge, but at that point in time it was a major concern that we had.

Counsel Inquiry: So these were all things you had to think about if you were doing your job responsibly?

Mr Richard Bearman: Yes.

Counsel Inquiry: And flag, albeit you couldn’t know exactly how they would land?

Mr Richard Bearman: Yes.

Counsel Inquiry: All right. So we understand that a letter setting out the Bank’s concerns was sent to the private secretaries, to the Secretary of State in BEIS, and to the private secretary to the Chancellor of the Exchequer. I’m just going to ask if that could be put up, please.

I think it’s INQ000563990.

So this to Sam Beckett. I think she was the permanent secretary at the Department for Business, Energy & Industrial Strategy; is that right?

Mr Richard Bearman: Yes.

Counsel Inquiry: And this sets out, I think, if we just go down, we see at the bottom of that letter “Significant risk of fraud and abuse”, and then over the page, page 2, this potential negative impact on the sector.

That’s the sort of competition point, I think you’ve just been speaking to.

Mr Richard Bearman: Right.

Counsel Inquiry: And then this point about whether it’s operationally deliverable, is that the other point?

Mr Richard Bearman: That’s essentially the third point.

Counsel Inquiry: Yes, that’s the third point. And just under that, again it raises this:

“We have flagged” –

And I say “again”, we’ve seen something similar earlier:

“We have flagged to officials there are still alternative options for Ministers that would address many of the remaining obstacles of the swifter delivery of lower value loans through the current CBILS.”

So the bank was still exploring, was it, whether there was another way, a third way, if you like?

Mr Richard Bearman: I mean, essentially, if – this is a very compressed period of time, so the sort of discussion we had earlier I think is still just as relevant here.

Counsel Inquiry: Yes.

Mr Richard Bearman: That these discussions are all very live, happening in sort of 24, 48 hours. So I think it’s sort of incumbent on us to sort of, if we have reservations about something, to be trying to make sure we are flagging potential alternatives.

My personal view, by this stage I think those alternatives were running out of sort of steam, essentially, in terms of how they’d been – definitely by this time Start Up Loans had been discounted.

But I think, from my perspective, it’s sensible if you’re putting reservations, to at least be trying to think through what the alternatives could be.

Counsel Inquiry: I think the Chancellor made an announcement on 27 April about the scheme, and we mentioned earlier it had a different name initially when it was conceived, but I was announced to be the Bounce Back Loan Scheme. I don’t think the bank knew about that name or had been consulted on that, but that’s what it was called. What you call it, I suppose, doesn’t really matter that much but it wasn’t just what it was called, was it? There were also, in the announcement, changes to the size of the loans. So originally it had been envisaged to be 25,000, now it’s said to be 50,000; is that right?

Mr Richard Bearman: Correct.

Counsel Inquiry: And that hadn’t been discussed with you and your team before it was announced?

Mr Richard Bearman: Not – not, to my knowledge, to any of the team, no.

Counsel Inquiry: No. I mean, what was your reaction to finding out in that way, finding out by a public announcement?

Mr Richard Bearman: It – I was – it was a surprise. I mean, it was a surprise, because up until that point we’d obviously been discussing £25,000 loans. I mean, as you say, the name change, I – I think there was lots of, sort of, conversations and, sort of, chat about names, that sort of thing, but, as you say, not in itself material.

I think the – it was a surprise. And – and as I put in my statement, I – you know, I think, as far as I was aware, lenders and officials weren’t aware. I’m sure some would have been but not the ones we were dealing with. So it was – was a surprise.

I – I read in Chancellor Sunak’s statement that he – he made the decision on the back of conversations with lenders, but I – other than that statement, I’ve seen no other, sort of, rationale for it.

Counsel Inquiry: I mean, other than the fact that it’s always nice to be asked, did changing it from £25,000 to £50,000 actually do anything to change or affect the issues that were under consideration? Were they still all the same problems, it was just a different ceiling?

Mr Richard Bearman: I think it brought some – I mean, it definitely brought some positives because it drew – clearly drew a sort of a – it provided support to a wider range of bigger businesses that I think were – were struggling. And, equally, gave us almost a, sort of, crossover – much deeper crossover with the CBILS scheme. So I think, you know, definitely you could see the advantage of – benefits of it.

I mean, the underlying challenges were still the same. I don’t think it changed operationally too much the challenges. The fraud risks were the same.

I think it’s – I mean, it’s probably an obvious point, but it increased the sort of – the quantum of fraud risk, because it obviously increased the quantum of the amount of money that someone could take.

Counsel Inquiry: All right. So that was 27 April, and I want to move on to a slightly different but related topic, also from 27 April, because I think on that day the Chancellor makes his announcement, but you also organised and set up a workshop, if you like, a fraud collaboration call with representatives from lender institutions to discuss how you might minimise fraud –

Mr Richard Bearman: Mm-hm.

Counsel Inquiry: – in this scheme. And before I ask you just to explain that, should we understand, therefore, that everything told you this was going to happen: you were going to be told to get on with this and deliver it, so you weren’t waiting for that to happen –

Mr Richard Bearman: Mm-hm.

Counsel Inquiry: – you were trying to get ahead of that and be as proactive as you could be about what you could do to minimise fraud?

Mr Richard Bearman: Correct. I agree.

Counsel Inquiry: Yes, okay. So what was the point of the forum, and how did work?

Mr Richard Bearman: So we – we’d had – we’d had lots of bilateral conversations with lenders on the scheme, in many different ways, but fraud was a recurring theme. And so the … I actually discovered that there wasn’t – there was no forum where commercial lenders came together to discuss fraud. So the – the – UK Finance did host events for the retail – the retail bank – the eight retail banks, but there was no forum. And it just seemed very, sort of, obvious that if we could bring those – those organisations together, we could fundamentally start to share best practices, start to discuss – at this stage we hadn’t gone live, but discuss the sort of – the themes.

We could talk them through that PwC report. We could start to engage, and PwC were a key player and we were able to sort of engage them at that event. But it was really to kind of bring the collective minds together to think, okay, if we are going to be going live with this scheme, what are the risks, what are the challenges, and what can we do to minimise it?

That forum continued, and it evolved into a regular forum that was weekly and then became biweekly and it is now operating monthly and it sort of evolved a bit because we also talk about – or they also talk about recoveries.

But essentially, it was to share thoughts, share ideas, build up the risk basis, to be able to speak to all the lenders, so the Cabinet Office Counter Fraud Function could come along, we could get NATIS along, who were – they were involved from an enforcement perspective. Home Office came along – and it was that ability to bring all of those minds together in one place, work through the challenges and actually come up with ideas, come up with solutions, and we may come on to this later, but of the controls that were put in place once the scheme was live, most of them originated in that forum where someone in the forum was saying, “Okay, we spotted this, we’ve identified this challenge”, and that collective collaboration to try and work through, well, what could we do about it?

And then, you know, Cabinet Office or someone would say, “Okay, well, we’ll take that away and we’ll try to come up with a solution.”

So I do think, while fraud is clearly a hot topic and a theme, and one that, you know, I will never ever get to a point where I don’t feel anything other than frustrated by the fraud that took place, I do look back at the creation of that collaboration working group as a – with a small amount of pride to think, you know, we got, you know, the lenders together, and that’s still going. And I’d like to think there’s a little bit of long-term benefit as a result of it. But it was a really important forum to resolve issues and to understand the challenges.

Counsel Inquiry: And just to take an example, as we understand it, that emerged from that forum, one idea was to set up a database that could capture duplicate applications which were flagged as a potential problem.

Mr Richard Bearman: Mm-hm.

Counsel Inquiry: And I think subsequently, that was worked up with Cifas; is that right?

Mr Richard Bearman: That’s correct. We talked about it earlier, right from the outset, from the PwC report, from the lenders’ concerns. It was always going to be a very big risk sitting in this scheme, you know, sometimes called multiple, sometimes called duplicates, but that risk of fundamentally someone going to two different entities, two different banks, and getting twice as much money or more than that by having multiple loans.

So we didn’t have a control on launch, but through those forums, you know, the issue was thrown around and ideas formed, and ultimately I was able to engage with Cifas and set up this database so that – and it was – it was crude, it was rudimentary. It was put together very, very quickly, and, you know, it had false positives and so it wasn’t perfect but it gave a solution to allow a lender, when someone did apply to them, to essentially check did they have a loan elsewhere and, if not completely remove, but to minimise that loss.

But it took time to put together. But I think, on – I think, putting – getting that database together in the timeframe we did I thought was, you know, quite an impressive feat. Others may disagree.

Counsel Inquiry: And as you say, that continues to meet today, monthly –

Mr Richard Bearman: That forum, absolutely.

Counsel Inquiry: And so it’s obviously had benefit outside the pandemic.

Mr Richard Bearman: I would – I really would hope so. I think it’s one of the things I would hope continues. You know, I think the commercial banks coming together and sharing their experience around fraud and, as I say, now they’re exploring recoveries, and it is still heavily focused on Bounce Back Loans, but I would like to hope that that is something that is a little bit of a positive legacy from the fraud experience of the banks that, you know, potentially we minimise fraud, and if ever we do have to head into a crisis in the future, we’ve got a forum that’s already up and running and already operating.

Counsel Inquiry: Yes, okay.

I think there are other fraud foras at the same time. There was the Covid-19 Fraud Ministerial Board; is that right?

Mr Richard Bearman: That’s my understanding, yeah.

Counsel Inquiry: Yes.

Mr Richard Bearman: That was one I don’t think I was attending.

Counsel Inquiry: You weren’t – right, okay. And the Counter Fraud Forum, were you familiar with that?

Mr Richard Bearman: So we had a counter fraud forum within the bank.

Counsel Inquiry: Yes, within the bank?

Mr Richard Bearman: There were lots of fora, and my apologies for being slightly sort of unsure on some of this, because a lot of the names changed so they were sort of retitled as we went thorough. But essentially, we had within the bank, a fraud forum where we focused on almost ourselves and what we were dealing with.

Counsel Inquiry: So your internal checks –

Mr Richard Bearman: So internal –

Counsel Inquiry: – your internal systems, those sorts of things?

Mr Richard Bearman: Absolutely.

Counsel Inquiry: Okay.

Mr Richard Bearman: And then there were sort of multiple forums chaired by BEIS that brought together sort of officials from, you know, so you’d have BEIS, Treasury, Cabinet Office and others, and they were looking at it from kind of a multi-departmental perspective.

Counsel Inquiry: Okay.

Before the pandemic, if you looked at the bank’s internal counter fraud capability, was it sufficient to cope with what was happening, and the volume, and this massive explosion in volume? Or did you have to step it up, and if so, has it remained stepped up?

Mr Richard Bearman: So it – I think it was fit for purpose on the way in. I don’t think any element to the bank were, sort of, scale – sort of ready for this scale. So absolutely we had to scale that up. So we recruited and we – as I said, we used – we relied on PwC in the early days and – and I – and relied very heavily in the early days, and then throughout, on the Cabinet Office Counter Fraud Function for expertise.

But we also recruited and increased our own team, which has – has evolved over the – over the ensuing years, but absolutely, we’ve got enhanced counter fraud – actually financial crime and fraud expertise in the bank now.

Counsel Inquiry: Yes, so if you were faced with another emergency in the future, you’re much better able to deploy that expertise –

Mr Richard Bearman: I think we’ve got more – the bank has grown in many ways, and so I think that expertise is important in lots of different elements of our, sort of, standardised products. But I agree, I think we’ve got enhanced counter fraud and financial crime expertise in the bank.

Counsel Inquiry: Now, in the timeline, we’re only a few days on from the idea of the scheme, and we haven’t got to it being launched yet, though it seems we’ve covered an enormous amount of ground already, but let’s bear in mind we haven’t yet got to the first loan going out of the door.

I think PwC were asked by you again to do another piece of work, which became known as Project April, is that right, a fraud risk review?

Mr Richard Bearman: Essentially it was almost like a post-launch review. So they’d done that piece of work, the risk assessment, pre-launch, and then in short order after launch – because, although it was only days, I think – I’m trying to think, I think it was about 8.4 billion was approved in that first week. So it was only days afterwards but it seemed appropriate to get them back in to, kind of, do a follow-up review to almost – okay, is it working, what we’ve put into place, and what else should we – could we do?

Counsel Inquiry: Right. Well, I’m sorry if I’ve jumped out of the chronology, but let me try to regain the chronology.

I think you’ve mentioned this already, that – I’m going to ask this is put up on the screen.

INQ000564005.

This is the reservation notice.

I think this was the first time that the bank had taken this step of issuing a reservation notice; is that right?

Mr Richard Bearman: That’s – to my knowledge, yes.

Counsel Inquiry: And so this is a formal notice to the Secretary of State in respect of the proposed Bounce Back Loan schemes which sets out the Bank’s concerns; is that right –

Mr Richard Bearman: Correct.

Counsel Inquiry: – with the scheme?

And what’s the consequence of issuing a reservation notice, so far as you’re concerned? Are you just formally recording your reservations?

Mr Richard Bearman: I mean, essentially, yes, that is my understanding of the reservation notice. But it also insists – it also ensures that we get a formal response, effectively instructing us to crack on and – and do it, recognising those risks.

It’s not that those risks weren’t discussed and debated, of course, but it’s – you know, it is a serious step for us to do this, but it’s – to formally recognise those concerns and, as I say, to formally get an instruction that very clearly recognised those concerns and instructed us to continue.

Counsel Inquiry: And as you said, you send in the notice and then comes the ministerial direction from the Secretary of State essentially saying, “Get on with it”?

Mr Richard Bearman: Yeah.

Counsel Inquiry: “I note your reservations, but get on with it.”

And that’s the direction to go?

Mr Richard Bearman: Yes.

Counsel Inquiry: And so you mentioned launch. Let’s just go over that again. Formally launched on 4 May –

Mr Richard Bearman: Mm-hm.

Counsel Inquiry: – 2020.

Mr Richard Bearman: Yes.

Counsel Inquiry: Initially it was going to be open until 4 November, but – I’m just taking this from your statement, just to put all this into context – £2 billion worth of applications reported by just four lenders after the first day of launch?

Mr Richard Bearman: Correct.

Counsel Inquiry: And in the first week that the scheme was open, 268,000 loans approved, with a total value of £8.4 billion?

Mr Richard Bearman: (Witness nodded)

Counsel Inquiry: Now, getting back to objectives, the objective was speed. 8.4 billion of loans approved within seven days. On the speed front, would you say you were meeting the objective?

Mr Richard Bearman: Yes, I think we met that objective, yes.

Counsel Inquiry: And just thinking about those numbers, looking at the counterargument, the argument you shouldn’t have done this, I mean, that’s money, that 8.4 billion, that wouldn’t have been available under CBILS? Or wouldn’t have been available under CBILS at pace?

Mr Richard Bearman: I think, broadly speaking, both. 85% of Bounce Back Loan borrowers had never borrowed commercially before. So the – and that’s not to say that some couldn’t have got a CBILS, but clearly it wouldn’t have been done at pace. But I think it is – and this is a presumption, I can’t prove this point, but I think it’s fair to say that the vast, vast, vast majority of those – those borrowers would potentially not have got a CBILS and definitely not at the pace that they’d got a Bounce Back Loan.

Counsel Inquiry: So if you work on the basis that people borrow money because they need to, these would have been businesses that wouldn’t have been able to access funds at all; that’s your understanding?

Mr Richard Bearman: I think they would have struggled to access funds. The deeper we got into the pandemic, the deeper we get into lockdown, in normal circumstances, where you have to – if you’re going to apply for credit and go through credit checks, you have to sort of be able to prove the affordability and viability of the business, and of course, if you’re in lockdown, the ability to prove that becomes increasingly difficult.

Counsel Inquiry: Okay. One of the issues with CBILS that we’ve heard about is this difficulty of accrediting lenders. Was the accreditation of lenders process under Bounce Back Loans smooth, or were there problems there?

Mr Richard Bearman: I think, looking back, it was smoother, I think because essentially we were building on the back of the work that we’d done previously. So, again, because of the need for speed, we had essentially two accreditation processes, one that was a fast-track process. So where they’d already been accredited and gone through the due diligence for CBILS, they’d actually – there was a process, they’d have to apply, it would be assessed, but it was a very, very fast-track process and then we had a sort of fuller due diligence for an organisation that – for organisations that applied that had not gone through the CBILS process.

I think it was smoother because I think it was always likely to have less organisations sort of stepping up to do the scheme, because – for a number of reasons, but one of them being they had to be able to demonstrate a degree of scale. So it removed from the accreditation process sort of smaller organisations that were able to deliver the CBILS scheme.

Counsel Inquiry: So you had stood up the scheme in that short period of time, 13 days, money is going out of the door of the commercial institutions. You’ve done a lot of warning about fraud and risk of loss before the scheme stood up. You were told that speed was the priority. But it’s now stood up. Did you just sit back and say, “Well, we told you so” or did you get on with trying to do what you could to tweak the scheme and keep it as effective as it could be in terms of minimising risks?

Mr Richard Bearman: Definitely the latter. I and the team spent probably more time thinking around and engaging and exploring options around fraud than probably any other topic, particularly in those early months. And actually, I think, throughout the scheme’s life.

And I think that a lot of that comes from that collaboration – that was the origin of a lot of the ideas and conversations, but as we got to sort of work increasingly with the Cabinet Office Counter Fraud Function, working with them, exploring with them what options they were, you know, hugely helpful in leading on a data analytics programme, working with them and the lenders on coming up with additional controls, the Cifas, the one we’ve already talked about being one, but there are others.

So I think almost – I’d almost say sort of obsessively working on and thinking about how we, not just stop fraud, but also, how do we work to identify the fraud? And then, as time passed, thinking about okay, well, how do we recover more of that fraud, if indeed it’s taken place?

Counsel Inquiry: Can I just pick up on the Cifas duplicate applications database. That was, as we understand it, it went live on 2 June 2020, so about a month after the scheme launched. Without sounding ungrateful, why did it take a month for that to come into force? In other words, you’d thought about this –

Mr Richard Bearman: Yeah.

Counsel Inquiry: – problem from the outset, so why not work it up earlier? Were there operational challenges?

Mr Richard Bearman: Yeah, I mean, I’ve heard that said on a number of occasions by people on the way. I think it was a fabulous effort to get something like that up as quickly as it was to put together. I think, just as to sort of, to put it into context, to get a database built with ultimately 25 different commercial organisations all inputting to that database, agreeing standardised approaches, standardised data points, standardised actions to take from the data points, that millions of data points are all being loaded into this system, and actually agreeing with the lenders how they would do it and getting them to agree that it would become mandatory, because it’s the sort of thing that, obviously, if only half the lenders use, then you’re not going to be able to check what’s happened previously.

And actually getting them to agree to something that they knew that potentially would be a risk further down the line, because they were voluntarily taking on an additional mandatory obligation.

So I think getting a database of that size and scale and complexity, also considering data – you know, data protection implications, GDPR implications, data agreements, and for Cifas to build the thing, you know, I, I will always look back and think that was – I would have loved to have had it on day 1, I would have loved to have had it there to start with, but I look back on it and think it was launched in really good order.

Counsel Inquiry: And presumably, just to add to that, you also still had an awareness that the Treasury was resistant to anything being introduced that would slow down speed of delivery. So it was doing all of that, getting everybody engaged with this database, making it accessible to all the lenders, making the data points work, in such a way that did not cause applications to be significantly delayed?

Mr Richard Bearman: Correct, and we had to – we had to put – it’s in the evidence – there was a ministerial submission to actually get ministerial approval for us to essentially make it mandatory. So because of that resistance to checks and the sort of – that policy objective to make sure things were not slowed down at all, that we had to go through that process of explaining here’s a solution to that particular risk, we’ve got all the lenders on board, but we still, you know, quite rightly because of that focus on speed, went thorough a ministerial submission to ensure that we had approval to make it mandatory.

Counsel Inquiry: Yes. And let’s move on to that submission. This was on 11 June 2020. INQ000564055.

That appeared without me finishing the reference, so thank you very much. But there it is.

There were really three things, I think, that emerged from this submission, three things you were asking for ministers to agree to; is that right?

Mr Richard Bearman: Yes.

Counsel Inquiry: Three core components. One, page 3, paragraph 15, please. To mandate, as you’ve just said, the use of the Cifas solution. So that would come from ministers?

Mr Richard Bearman: Yes.

Counsel Inquiry: That’s now mandatory?

Mr Richard Bearman: Mm-hm.

Counsel Inquiry: And you’ve explained the importance of that and what it was designed to tackle.

And then paragraphs 16, please. Thank you.

“Action 2: Empower lenders to take up to 48 hours for fraud checks across high-risk groups as long as they continue to process the majority of applicants within 24 hours.”

So not changing the goalposts for the majority of people wanting to access this scheme, but what, saying, “We think we can identify a small number of high-risk applicants –

Mr Richard Bearman: Mm-hm.

Counsel Inquiry: – and we should have a little bit more time to process them”?

Mr Richard Bearman: Yes, I mean, essentially that’s correct. So as well as looking for those sort of scheme-wide controls, such as the Cifas checks and some of the other things that come into play, we were also having lots of bilateral conversations with the lenders, essentially – a lot of them were doing it of their own accord – of their own account, but encouraging them and trying to liberate them to say: look, what else can you do? What other controls can you put in that aren’t necessarily going to be scheme wide, although if they work, we’ll share them?

And so the lenders, to different degrees, some – some to more – to more effort than others, but they were all trying to come up with controls they could put into place. But what they were flagging is that – if you have a control, quite often, you know, it will click and it will say: here’s a potential challenge you need to investigate.

Very rarely does it say, you know, “It is definitely” – well, it’s very difficult to say, “It’s definitely fraud”, but “Here’s something you need to investigate”. And they were, sort of, very nervous because of this – this strong instruction that everything had to be done at speed and that 24 hours was really locked in as the sort of – the deadline for delivery.

And so to give them the comfort to kind of encourage them to do more of their own individual building of the fraud controls, we put this in just to give them that little bit leeway to allow them to, sort of, identify and flag high-risk cases and then take the time to review them and then decide if they proceed or not.

Counsel Inquiry: Okay. So that was the second action.

And then page 4, paragraph 17.

Third action there that you were proposing, which goes back to the point you’ve made about CCJs, which, yes, are a credit check, but one that can often inform you about fraud as well. So this was allowing lenders to decline an application where you’ve got more than three on your record.

Mr Richard Bearman: Correct.

Counsel Inquiry: Right. And three was, what, taken as being: that’s not just a mistake or a one-off, it’s likely to show a pattern?

Mr Richard Bearman: It – perhaps slightly kind of arbitrarily it was trying to suggest that if you’ve got multiple CCJs, there could be an implication of, sort of, behaviour that was more fraudulent than just credit losses. And with all of these sorts of checks, it doesn’t mean to say that they would be automatically declined but it would put it into this high-risk population and then ensure that they were looked at more closely.

Counsel Inquiry: Okay. So that was what you were asking ministers to allow you to do?

Mr Richard Bearman: Mm-hm.

Counsel Inquiry: Those three core things. And those were, presumably, all three things that you thought: this will make a difference, quite a significant difference, but it won’t really get in the way of operational speed of delivery?

Mr Richard Bearman: Correct.

Counsel Inquiry: Right.

I just want to move on to look at what happened in response to that submission.

And I’d like, please, INQ000595845.

And this is an email exchange between BEIS, Treasury, and bank. Let’s just look at this here:

“But in case useful context, HMT view is that lenders already have permission to use their discretion to assess the application in this way where they believe the CCJs are an indicator of fraud. EST …”

That’s Economic Secretary to the Treasury, I think?

Mr Richard Bearman: Yes.

Counsel Inquiry: “… fully supports the banks using their judgement in this way and is not minded to undercut that by prescribing that they must take a particular approach.”

And is the bottom line about this submission that there was a bit of divergence between what the Secretary of State in BEIS was willing to agree, and the Treasury, in that the Secretary of State, as we understand it, was willing to say yes to all three actions, but the Economic Secretary to the Treasury was pushing back on the third, saying, “Well, banks can already decline on that basis if they think it’s a fraudulent application”?

Mr Richard Bearman: I think this actually became quite confused and I think there’s further email exchanges that sort of show that because there are some exchanges that say it’s approved fully and others that say it’s not. So I think this particular point did become a bit confused.

And I think it sort of goes back to, as I said much earlier on, that I wish I’d taken more time to explain actually the interrelation between credit checks but that’s with hindsight.

I don’t think this actually gave us what we were looking for, because we were looking for it to be specifically mandated, because then you could build a consistent approach, and ensure that it became part of the scheme.

I think it is fair that they had the right to decline based on their risk assessment, it’s fair, but of course, they’d also been told to switch off all of their credit processes, and this is a credit process. So they’d actually, in most parts, sort of, almost switched off or removed this from part of the journey. So what we were looking for is actually that to be mandated, that essentially they would all have to switch it back on, we could agree one process for communication, you wouldn’t have that – the issue of a Lender A declining because of a CCJ, Lender B not, et cetera, et cetera.

So it was positive in the sense that we could go back to the lenders and say, “If you still have it on, just to be really clear, you can decline based on three CCJs”, but to my view, it didn’t go far enough.

Counsel Inquiry: No. So really, you got two out of three of the –

Mr Richard Bearman: Two-and-a-half.

Counsel Inquiry: Two-and-a-half, all right, so not quite Meatloaf, but two-and-a-half of the things you wanted.

All right, very good.

Can we move on to another issue, change of director fraud. I think, is this right, that this was also identified as another potential indicator of fraud, where you saw directors being changed –

Mr Richard Bearman: Mm-hm.

Counsel Inquiry: – which would give the impression that a company was therefore active; is that the idea?

Mr Richard Bearman: Essentially, yes. It’s the risk – if you’ve got – perhaps you’ve got a shell company or a dormant company, or the ability for someone to sort of buy a company, and then, by buying the company, you change the director, and then you then apply for the loan, and it was identified again, I’m sure others probably found, you know – highlighted it, as well, but it was identified through that Fraud Collaboration Working Group by one of, if not more of the lenders, as something that they’d observed, and they were starting to get worried about and that ultimately led to the additional check being put in place.

Counsel Inquiry: Yes, and that was a fairly simple step, was it, to put that check in place?

Mr Richard Bearman: Um, I don’t think it was necessarily that simple but our Cabinet Office Counter Fraud Function was really helpful because they had access to – they were able to get access to Companies House and to essentially put in place the check. It was only possible because we’d built that Cifas duplicate check because, essentially, it was almost just another flag that was put on that, so when someone would go in to check whether there was a duplicate, it would also check at the same time was there a flag that there’d been a recent director change.

So without the Cifas duplicate, we couldn’t have done that, but I don’t know how easy it was for the Cabinet Office to get the data, but I think it was another positive addition to the counter fraud controls that were in place.

Counsel Inquiry: Yes. And you would say, no doubt, demonstrated that you weren’t just taking one measure but you were always looking to see how you could add to those measures over time?

Mr Richard Bearman: Yes.

Counsel Inquiry: Okay. And generally speaking, how did you find the Cabinet Office centre of expertise assisted the bank in terms of tackling fraud and issues that arose?

Mr Richard Bearman: I think they’re a key partner for us. It was – I mean, it wasn’t always an easy relationship. It was – it was at times difficult, but I think almost, from their part, by design. I think they took a role to – to support. They took a role to add their expertise and definitely their capacity to do things like their data analysis and analytics that we could use. But they have clearly a very important and – and almost linear role of protecting public money and protecting from fraud.

So, you know, there would be many times when they would be challenging and pushing us and thinking – and “Have you thought of this? Have you thought of that?” And sometimes we were able to do it and other times we would have differences of opinion. But I think they were a really key player to us.

And, you know, I think they – they brought expertise and they brought resources that we didn’t have. So, you know, it was a – I think, an important component to the – to the overall piece that we were operating in.

Counsel Inquiry: Expertise and resources, yes, but – although it can’t have always been pleasant, because I think sometimes Lord Agnew, for example, was really bearing down on the bank and being critical. Did you feel it also helped to have that external challenge, to have that sense of external oversight, and that you were being pushed? I’m not saying that you needed to be pushed, but to know that you could not become complacent?

Mr Richard Bearman: Look, at times I felt perhaps it went too far. I think sometimes some of the criticisms I would not recognise, but I think – I think it is important to have functions that – that hold you to account, and to push. And you can have those, you know, challenging conversations.

In the early days, I think one of the difficulties was I don’t think – I don’t think the Counter Fraud Function had the expertise in – in debt, and particularly debt with banks, and particularly where you use a delegated scheme.

So I think a lot of the expertise and their processes and systems were built around – almost like grants, or HMRC, where almost you owned the – you owned – the problem sat within you, so it was your customer almost, if you put it that way. And so you had visibility of all the data and all the information, whereas we were always working true that third party.

So in the early days there was, sort of, lots of trying to explain and work through that, but I think – I think one of the positive outcomes of the scheme, despite the challenges and despite, as you reference, you know, Lord Agnew’s comments, I think we now have a much better understanding and working relationship with, now, the PFSA, and I think if we ever got thrown into something like this again, we would avoid a lot of those really tough conversations at the beginning, because we understand each other’s role and how we operate. So I think we’re in a – in a good place.

Counsel Inquiry: Okay. And I just want to briefly pick up on other developments over the lifetime of the scheme. There was the Lender Performance Dashboard that was stood up; is that right?

Mr Richard Bearman: That’s correct.

Counsel Inquiry: That was part of, or developed with the bank working closely with the government’s Counter Fraud Function; is that right?

Mr Richard Bearman: Mm-hm, correct.

Counsel Inquiry: Can I move on to extension of the loan schemes, and I don’t want to get too much into the detail here, but, taking it very shortly, is this the position: that the Chancellor wanted to extend the schemes –

Mr Richard Bearman: Mm-hm.

Counsel Inquiry: – which had been due to end in the November. The bank didn’t – and I don’t just mean from the perspective that the bank didn’t want to do it any more, but the bank had to look again at what the risks were, how much extra fraud might be, how much extra loss there might be to the public purse.

Mr Richard Bearman: Mm-hm.

Counsel Inquiry: So you were flagging all of those things. There was a further letter of reservation, I think?

Mr Richard Bearman: Yeah.

Counsel Inquiry: And a further ministerial direction?

Mr Richard Bearman: Yes. So again, I was not party to the kind of board level conversations around that. I think that sort of November – that sort of conversation in November reservation, I think – looking back on it, I think probably we got that one maybe wrong, looking back on it. I think the decision at the time was spot on, but I think at the time, that if you recall, we’re in that period where it felt like things were opening up. It was before that sort of second – there was a big sort of lockdown in that December, if you remember, around Christmastime and I think the bank at that time was looking at it, and going, “Actually, things are opening up, we are getting a little bit back to normal, we probably don’t need this level of extreme support and with all the risks that come, so to continue, we still think, therefore, there’s a value-for-money concern.”

Personal view is that, in retrospect, very quickly, we hit another big lockdown. So, frankly, I think, you know, looking back on it, that perception of opening up was wrong but at the time it seemed – it was obviously – seemed to be appropriate to issue another reservation.

Counsel Inquiry: Okay.

I’m sorry we’ve sort of cantered through those last few topics but I wanted to give you an opportunity at the conclusion of your evidence, as your colleague had earlier, to share any other reflections. We’ve dealt with a lot of learning that’s been done and things that have changed, but is there anything else that fundamentally strikes you as having been good learning from what happened, proposals for the future?

Mr Richard Bearman: So I think there’s lots of incremental pieces of learning that have been built into the way we operate. We’ve talked about a few of them. I mean, even sort of small changes to – Reinald de Monchy was talking earlier about the Growth Guarantee Scheme. There are small changes in the contracts we brought through from RLS and GGS to ensure that we have better access to data from our partners, little tweaks around fraud. So there’s been incremental changes I think which are positive.

I think the wider kind of points that I think are worth drawing out is, I do think – it is always important that we don’t lose some of that almost institutional memory across government, so I think some – there ought to be a crisis toolkit at a sort of interdepartmental – I think that’s quite important to make sure that the learnings are maintained and that we have a good toolkit to refer to, should we hit another crisis.

There’s been lots of work done around data but I think that’s another important area to continue to work on. How government shares data, how we share – and of course we’ve got, you know, it’s important that we protect consumer and people’s data, but some of the challenges of the scheme were the inability to access data quickly, so I think that’s an important area for us to collectively work on.

And I think the sort of final thing, in that toolkit, I do think a scheme like Bounce Back is still important to have in the toolkit. If we ever hit a crisis, it should always be the, sort of, almost the last emergency lever we pull, because it comes with such risk, but if ever we, you know, depending on the circumstances, I think it’s important to have a scheme like Bounce Back Loans.

I will never be comfortable with the level of fraud that took place. Frankly, it’s less than people worried about, but it’s still considerable amounts of money. But when you look at the evaluations, and hundreds of thousands of businesses survived as a result of the scheme, and as a result of that, many hundreds of thousands more people stayed in employment, and again, without being overly sort of sentimental, that meant millions of families and people were supported by the salaries those employees were given. And I go right back to that comment I made earlier that, the view was it was almost existential. Now, whether it would have been or – you know, we can debate, but I was in Belfast last week, and in front of a business, a large business, 55 million turnover business I think, from memory, and they were doing a presentation effectively talking about equity fundraising, but they started off talking about the loan schemes and saying if it hadn’t been for the loan schemes, we wouldn’t be here today, and the 50 people we employ wouldn’t be employed.

And I just say that because the risk is the Bounce Back Loans becomes all about the fraud. And I think it’s really important we don’t lose and think about, in a future scheme, how we stopped the fraud and how we minimise it and how we can do better and how we avoid some of the mistakes we – went along the way, but I think it would be terrible for us to, sort of, almost, therefore, dismiss this as an option in that last case scenario, of taking a really high-risk plunge to have the impact that this scheme had.

So that would be my, sort of, final comment. Thank you.

Mr Wright: Thank you very much, Mr Bearman.

My Lady, those are my questions and I don’t think there are any other questions from any Core Participant.

Lady Hallett: No, thank you very much indeed, Mr Bearman. I’m extremely grateful to you. You’ve been very helpful and very frank.

And whatever I may find about whether improvements can be made, in my judgement you’re rightly proud of the huge amount of work that you and your colleagues did to try to get money out to businesses that desperately needed it for the business to survive and for their employees. So thank you very much indeed for what you did during Covid and thank you for your help to the Inquiry.

The Witness: Thank you very much.

Lady Hallett: Very well. I shall return – oh, sorry, one other matter, I think, Mr Wright?

Mr Wright: Yes, if I can just briefly address your Ladyship on one other matter, which is that, as your Ladyship is aware, earlier today the report of Tom Hayhoe, the Covid Counter-Fraud Commissioner, was laid before Parliament by the Chancellor of the Exchequer. The report is now available to the public and, therefore, to all Core Participants, and the Inquiry legal team has communicated that fact to all Core Participants by email, and directed them to where they can access the report online.

The subject matter of Mr Heyhoe’s report is, on its face, focused primarily on different issues to those which you are examining in Module 9. In particular, Mr Heyhoe has considered and reported on issues relating to fraud in the course of government procurement. In addition, a significant element of his report is focused on measures taken post-pandemic to recover public monies that were advanced as a result of fraudulent applications or that were otherwise advanced in error.

This module is not examining the ongoing government effort to recover public money, not least because of the temporal limitations of the Inquiry.

Your Ladyship, in our submission, must complete your own investigation and reach your own conclusions about those matters that fall within the scope of this module, accepting that some areas we’re examining may overlap with the report of Mr Heyhoe.

Thank you very much.

Lady Hallett: Thank you very much, Mr Wright. I shall look forward to reading Mr Heyhoe’s report, which I shall do with care.

Thank you, everybody, for today. I shall return at 10.00 tomorrow.

(4.14 pm)

(The hearing adjourned until 10.00 am the following day)