SMEs to access Financial Ombudsman Service over disputes

The Financial Conduct Authority (FCA) is consulting on plans to give over 150,000 small businesses access to the Financial Ombudsman Service to solve disputes with a financial services firm, in a bid to improve the protections available to SMEs

Currently only individual consumers and around 5.5 million micro-enterprises can use the service; larger businesses would need to take the firm to court. However, the FCA believes that many smaller businesses within this group struggle to do so in practice.

Under the proposals, approximately 160,000 additional SMEs, charities and trusts would be able to refer complaints to the Ombudsman. The eligibility would be changed to cover businesses with fewer than 50 employees, annual turnover below £6.5m and an annual balance sheet below £5m.

As long as a complainant is eligible, the Ombudsman can consider complaints about any regulated activity; it can also consider complaints about some unregulated activities, such as, lending to companies or the activities of business turnaround units.

The FCA also proposes to extend eligibility to personal guarantors of corporate loans, provided the borrowing business also meets the eligibility criteria.

Andrew Bailey, chief executive at the FCA, said: ‘Our evidence suggests some small businesses currently find it hard to achieve a fair outcome in disputes with financial services firms because court action is not a realistic option for them. 

‘The FCA proposals focus on the Financial Ombudsman Service because of its expertise in the financial services sector and the FCA’s statutory role in relation to it. More material changes, such as changing the basis for the way the Ombudsman makes decisions to enable it to deal with significantly higher value disputes, would require legislation, which only the government can introduce.’

The Federation of Small Businesses (FSB) indicated it did not feel the proposed reforms went far enough.

Mike Cherry, FSB national chairman, said: ‘It’s disappointing that the FCA’s paper is largely silent on the question of bringing more “unregulated activities”, including lending to small businesses, into the Ombudsman’s scope.

‘We also need to question why disputes from business owners whose firms haven’t survived are not considered as part of this consultation.

‘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.’

Cherry also suggested the proposed new award limit would leave some firms ‘in an unhappy middle ground’ where they have a case that is too big for the Financial Ombudsman Service but they do not have the necessary resources to go through the courts, and called for the creation of a new tribunal to assess disputes.

The FCA is asking for responses to the consultation by 22 April 2018 and intends to publish a policy statement making final rules in summer 2018.

The consultation on SME access to the Financial Ombudsman Service is here: CP18/3: Consultation on SME access to the Financial Ombudsman Service and Feedback to DP15/7: SMEs as Users of Financial Services

Report by Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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