Plans by the Financial Services Authority (FSA) to require businesses to report electronically could force the closure of many small financial firms, experts have warned.
Under the new rules, regulated companies such as banks, insurance brokers and independent financial advisers will be obliged to report details of their finances to the FSA via the web.
But industry groups warned many of the UK's financial SMEs do not have access to e-mail or the internet so will be forced to spend money on upgrading their computer systems.
Mike Williams, chief executive of the British Insurance Brokers' Association (BIBA), said 600 of his 2,500 members had no online or e-mail connections.
"For these guys it is not just the cost of going electronic – it is like the government switching off analogue television and leaving them in the dark, because they need regulatory approval to be able to trade," he told the Financial Times.
