Banks around the UK have been told by the FCA that they must improve their treatment of struggling small business borrowers.

As part of its work in response to the increased cost of living, the regulator has told banks they must treat small business customers fairly when collecting and recovering debts.

The FCA conducted a review of 11 collective bank practices and identified several issues, including lenders not treating small businesses fairly when they try to agree a sustainable payment plan, as well as staff not having the right training to provide effective support to customers and make fair decisions about cases.

Lenders not having clear policies to help staff identify and support vulnerable customers, as well as them not having quality assurance and testing for their processes to ensure they deliver fair results for consumers, were also identified as areas for banks to improve their service for borrowers.

The FCA has provided feedback to the individual firms it reviewed but also stated that it wants to see the “whole sector take action”. The regulator has written to the chairs of all retail banks with small business customers, telling boards to ensure they are meeting its expectations and to inform the regulator if they are unable to do so.

“People across the country will be affected by the rising cost of living – and this includes small businesses,” said FCA executive director for consumers and competition, Sheldon Mills.

“We were disappointed to find repeated instances of these customers not being treated fairly by banks when they’re struggling. We expect the whole sector to act quickly to improve this. We will take action if problems continue.”

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