FCA Tells Banks to Cut Delays for Defence SMEs After Review of Access to Banking Services
The FCA's review of defence SMEs' access to banking, published on 26 October 2026, found banks are generally willing to serve them but onboarding friction and delay are the main problem. It has written to banks expecting proportionate, risk-based decisions.
By Entrepreneur Group · Published
Small defence businesses are not being widely shut out of banking, but they do face friction and delays, according to a Financial Conduct Authority review published on 26 October 2026. The FCA found banks are generally willing to serve defence SMEs. It has written to firms that provide banking to SMEs, expecting proportionate, risk-based decisions and clearer explanations, and says it will intervene where necessary.
The review matters beyond weapons makers. The FCA's definition covers businesses involved in the research, development, production, delivery, maintenance, repair or overhaul of military systems and equipment, which can include software, logistics and dual-use technology firms.
What the FCA looked at
The review covered retail banks, building societies and some payment and e-money firms. It looked at banks' appetite for defence customers, how they identify them, account opening and servicing, compliance checks, account restrictions and closures, and the data and oversight firms hold. Lending and investment were outside its scope.
For the review, an SME is a business with fewer than 250 employees and either turnover of no more than £44 million or a balance sheet of no more than £38 million. The FCA spoke to banks, defence SMEs, trade bodies and government. It did not publish statistics.
The main findings
The FCA set out six findings:
- Banks are generally open to defence SMEs. Many are investing in specialist relationship managers, dedicated teams, training and governance.
- Friction and delay, not exclusion, is the main problem. Enhanced due diligence and several layers of approval can make account opening slow. The FCA notes delays can affect government procurement, payments, supplier onboarding and working capital, and that firms did not always explain their decisions.
- "Defence is not a single risk." The sector ranges from software and logistics to dual-use technology and weapons production, but banks do not always distinguish between them.
- Reputational and ESG concerns need to be clear. The FCA says there are no sustainability rules preventing firms from serving defence customers, and vague references to reputational risk make decisions hard to justify.
- Banks often cannot identify their defence customers. Standard Industrial Classification (SIC) codes do not always capture defence activity accurately.
- Oversight information is limited. Some banks have little data on outcomes for defence SMEs, such as onboarding times and closures.
What the FCA expects of banks
The FCA wants firms to take a risk-based, proportionate approach that reflects each customer's own risk factors, and to avoid blanket restrictions where a tailored approach is possible. If a bank applies a broad exclusion, it should be able to explain why. Senior managers should receive information that lets them oversee outcomes for these customers, and firms should consider whether similar issues affect other SME sectors.
The FCA says the findings do not create new obligations and reflect existing requirements. Regulation Tomorrow, the regulatory blog of law firm Norton Rose Fulbright, notes the publication is a point-in-time document that can be treated as retired by December 2028.
What it means for founders
The FCA's advice to defence SMEs is to be prepared to explain how they manage the risks of their business and to give banks clear, timely information. The rest of this section is editorial guidance.
- Prepare a short risk summary. Describe what you make or supply, who your customers are, and your export controls and compliance processes. Have it ready before you apply.
- Explain dual-use work clearly. If your product has civilian and military uses, set out both, since banks may not be able to tell from your SIC code.
- Allow time. Start account opening well before you need it for a contract or supplier onboarding.
- Ask for reasons. If an application is delayed or refused, ask the bank to explain its decision, which the FCA expects firms to do where they legally can.
Frequently asked questions
Can banks refuse to bank defence companies?
Banks can decline customers, but the FCA expects decisions to be risk-based and proportionate to each customer, and says broad exclusions should be explainable. It notes no sustainability rules prevent firms from serving defence customers.
What did the FCA find about defence SMEs and banking?
The FCA found banks are generally willing to serve defence SMEs and that the main problem is friction and delay during onboarding, not widespread exclusion.
Does the FCA review cover business loans for defence firms?
No. The review covered banking services such as account opening and servicing. Lending, investment and other sources of finance were outside its scope.