More companies could get the right to complain to the Financial Ombudsman Service amid efforts to tackle an “imbalance in power” between small businesses and banks, the City regulator has said.
Facing concerns that the owners of small and medium-sized businesses have nowhere to turn to resolve financial disputes, the Financial Conduct Authority plans to allow as many as 160,000 more companies to access the service, which previously has been restricted to consumers and the smallest firms.
The FCA has proposed extending access to the financial ombudsman’s free resolution services to all businesses with fewer than 50 staff, annual sales of less than £6.5 million and a balance sheet value of under £5 million. Only those with fewer than ten staff and a balance sheet of up to £2 million qualify at the moment.
The service’s award limit of £150,000 would remain unchanged unless legislation was passed to raise it, the FCA said.
The plans are partly a response to recent small business lending scandals, including the misselling of interest rate hedging products to thousands of companies; their systematic mistreatment at the hands of Royal Bank of Scotland’s Global Restructuring Group; and a fraud at HBOS that led scores of entrepreneurs to lose their livelihoods. As commercial lending is not regulated and access to the courts can be prohibitively expensive, those who suspect that they have been mistreated often feel that they have no route for redress.
Advertisement
The FCA said that its plans ultimately may “improve the way financial services businesses handle SME complaints. This may, in turn, lead to fewer complaints and a better standard of service for SME customers.”
However, the Federation of Small Businesses said that the proposals fell “short of the mark”, noting, for example, that the financial ombudsman route would not be open to those who had lost their businesses.
Mike Cherry, the group’s national chairman, said: “During the downturn, we had entrepreneurs forced under by complex, unregulated products. They then struggled to achieve redress because their businesses no longer existed. It’s not clear that, under these proposals, there would be enough protection for small businesses if they were faced with similar circumstances in future.”
He added that it was “strange” that increasing the award limit did not form part of the proposals. “Under the FCA’s proposals, there will still be firms in an unhappy middle ground where they have a case that’s too big for the FOS but don’t have the necessary resources to go through the courts.” Mr Cherry said that “serious consideration” must be given to legislating for an independent tribunal system.
Andrew Bailey, chief executive of the FCA, told The Times that he would support such a move. “We want to solve this problem. [The Times has] highlighted it extensively and there is clearly a gap in the framework for having affordable complaints resolution for small firms. Whether it comes from a tribunal system or the Ombudsman, frankly, providing it works, I’m indifferent.” However, he said: “The FCA can’t create the tribunal system. That requires parliament.”
Advertisement
Mr Bailey added: “I feel this issue is really quite pressing and we’ve got to get on and put out our proposal. If others want a different route, I’m happy to talk about it.”
Kevin Hollinrake, vice-chairman of the all-party parliamentary group on fair business banking, said: “Many of these cases are highly complex and only an experienced judge supported by financial experts would allow a proper analysis of the facts and allow the inappropriate and sometimes illegal actions of banks to be heard by the press, public and politicians.”
The FCA predicted that the service, which is funded by a levy and case fees charged to the firms it deals with, would have to handle 1,500 more disputes a year as a result of the planned expansion of its role. A consultation on the plans closes on April 22.