Small businesses will be able to bypass court proceedings for some bank disputes under plans released today by the City watchdog.
The Financial Conduct Authority (FCA) wants to open up the Financial Ombudsman Service (FOS), currently only available to individuals and so-called “micro-businesses”, to smaller firms.
The proposals come in the wake of Royal Bank of Scotland’s global restructuring group (GRG) scandal, which has seen the FCA come under pressure from politicians to clamp down on corporate banking malpractice.
But small business leaders slammed the plans, saying many financial products – such as loans and complex interest rate swaps – fell outside the extended FOS remit. A cap on FOS payouts in the under proposals was also too low, they said.
The FOS is free compared with the only avenue available to small and medium-sized companies – a costly fight in the courts.
Around 160,000 companies with fewer than 50 employees, annual turnover below £6.5m and gross assets below £5m will become eligible under the FCA plans, the regulator said.
The Federation of Small Businesses (FSB) labelled the FCA changes “disappointing”. Chairman Mike Berry 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.
FCA chief executive Andrew Bailey said: “It is important for everyone, including financial services firms, that there is an effective dispute resolution mechanism for businesses. 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.”
Meanwhile, the founder of peer-to-peer lender Funding Options said: “These proposals are extremely good news for small businesses. Many more SMEs will now have access to a much quicker and cheaper way to resolve disputes with banks.”
And Pinsent Masons legal director Mike Hawthorne added: “The most interesting element of this based on the limited information we have so far is how the no costs regime will interact with litigation funding. Claims brought by SMEs against banks are often third-party funded, and the possibility of costs recovery makes funding more attractive for funders. Without this, funders may need to recover more from awards made to claimants in order for funding to remain financially viable.”