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Why is it important?
The COVID-19 pandemic has, almost overnight, emerged and disrupted organisations across the globe. To support smaller and medium businesses (SMEs), who may have and continue to lose revenue and see their cash flow disrupted during this outbreak, the UK government introduced two debt programme schemes for SMEs: Coronavirus Business Interruption Loan Scheme (CBILS), and the Bounce Back Loan Scheme (BBLS) in March 2020. These schemes are part of a wider package of government support for UK businesses and employees.
There are large number financial service providers (including high-street banks, challenger banks, asset-based lenders and smaller specialist local lenders) who are accredited by the British Business Bank (BBB) for providing CLBILS and BBLS loans. As at 16 August 2020 over £49 billion worth of loans were originated by the accredited lenders as part of CBILS (£14bn) or BBLS (£35bn).
All accredited lenders will need to demonstrate how their business has met the criteria for issuing CBILS and BBLS loans and how they continue to service these customers in-line with the relevant scheme requirements.
What are the risk areas and challenges?
What should Internal Audit be doing?
Adapt their audit approach including the reporting mechanisms to respond timely and appropriately to ongoing COVID-19 pandemic developments and provide assurance on a real-time basis to add value. This may include attendance at lending committees in an advisory capacity, a phased approach to agile short form reporting, and thematic / hot reviews.
Internal Audit focus areas for testing of these schemes should include:
The Government fiscal support packages of CBILS and BBLS have driven significant demand into the lending process, requiring potential short-term tactical solutions to facilitate quick disbursement of funds. There has been little time or capacity to thoroughly assess the outcomes of the approved loans and the injection of such a large amount of credit into the market.
Internal Audit will need to focus on:
The focus on the application of debt programme schemes such as CBILS and BBLS will continue to increase, with the expectation of independent reviews by the regulators a possibility. As such, it is important that firms take advantage of this period to prepare, consolidate learnings from recent months and ensure a resilient approach is embedded.
Damian is a Partner within the firm’s Financial Risk Measurement team. He has over 23 years of experience in the financial sector and specialises in Credit Risk Management across the full credit lifecycle (from pre-approval and prospecting, to collections and re-structuring) covering retail, commercial, corporate and asset backed lending. Damian also leads Deloitte’s Credit Risk Transformation offerings.
Malhar is a Senior Manager within Risk Advisory practice at Deloitte and has over ten years’ experience in the financial services sector with experience and knowledge of working across the three lines of defence from credit risk management and model risk management perspective. Malhar has worked on number of credit risk transformation projects including design, review and implementation of various risk controls for retail secure, unsecure and specialist portfolios. Malhar has recently assisted number of large and medium sized UK banks with their implementation and review of Coronavirus Business Interruption Loan Schema (CBILS) and Bounce Bank Loan Scheme (BBLS) program.