Person operating a metalworking lathe in a manufacturing workshop.
The UK's most innovative businesses often start small.
Before they can develop new technologies, win contracts or expand into new markets, they need access to banking services to help them operate, invest and grow.
Access to financial services can be easy to take for granted. When those services work well they're almost invisible. However, when access becomes difficult or delayed, the effects can extend far beyond a single business.
Small-to-medium sized enterprises (SMEs) operating in or providing services to the defence sector play an important role in innovation and growth.
But these businesses do more than contribute to economic growth. Many are helping to develop the technologies, expertise and capabilities that support the UK's national resilience and security.
Banking services are part of that story. They help businesses secure contracts, invest in new opportunities and grow. They are one of the key links between innovation and capability, and between economic growth and national resilience.
That's why we wanted to understand whether defence SMEs were able to access banking services efficiently and consistently[1].
The challenge for defence SMEs is friction and delay, not exclusion
The current debate around defence and financial services has, at times, suggested that defence businesses are routinely excluded from accessing financial services. But for everyday banking services, such as opening a bank account, the picture is a lot more nuanced.
The firms we engaged with can and do serve defence SMEs. Many are taking steps to better understand and support the sector. In some cases, they're investing in specialist expertise, dedicated teams and governance processes.
But we also heard about long onboarding processes, repeated requests for information and delays in decision-making.
The theme that emerged was friction and delay rather than widespread exclusion.
That distinction matters because it points to a different challenge. The question is not whether firms are willing to serve the sector, but whether their processes are proportionate to the risks. And whether firms can reduce friction while managing risk effectively. SMEs can also help by being prepared to explain how they manage the risks associated with their business, and by providing clear and timely information to firms.
Defence is not one-size-fits-all
There is no regulatory barrier preventing firms from supporting lawful defence businesses. Financial services firms are entitled to make commercial decisions and determine their own risk appetite. But the approach they take should be proportionate to the specific risks.
One of the strongest messages from our work is that defence should not be viewed as a single category.
The sector is vast. It includes businesses that directly support the UK's defence capabilities, as well as those that are linked through the products, services or technologies they provide including software, logistics, maintenance, engineering, manufacturing and consulting. Their activities, business models and risk profiles can differ significantly.
Whatever the business model, robust due diligence to manage financial crime and other risks remains essential. But effective risk management is also about recognising differences.
A risk-based approach should focus on the specific customer, the activities they undertake and the risks they present.
Better information leads to better decisions
Another theme that stood out was the importance of data.
Many firms told us they do not always have a clear picture of their defence customers or the outcomes those customers experience throughout their journey with the firm.
Without good information, it becomes harder for firms to answer important questions including:
- Are applications taking longer than expected?
- Are decisions being applied consistently?
- Do governance processes reflect actual risk?
- Are customers receiving outcomes that align with the firm's stated approach?
Good management information helps firms answer those questions. It supports stronger oversight, better decision-making and ultimately better customer outcomes.
Getting the balance right
Our work does not introduce new rules or requirements. But it does reinforce an important principle: firms should take risk-based and proportionate decisions based on the circumstances of individual customers, including SMEs.
When firms get that balance right, they can manage risk effectively while helping viable businesses access the services they need to invest, innovate and grow.
Ultimately, we hope this work helps firms strike that balance and ensures that businesses contributing to the UK's national resilience can access the banking services they need to succeed.