The City watchdog has extended the financial ombudsman’s powers to oversee new SME complaints, but advocates say it is only a “piecemeal” solution towards bringing banks to justice.
The Financial Conduct Authority (FCA) has unveiled plans to allow small and medium-sized businesses with less than 50 employees and a turnover of less than £6.5 million, or a balance sheet under £5 million, to refer unresolved complaints to the ombudsman.
It will give 210,000 additional SMEs access to recourse the service.
Additional proposals by the FCA also aim to raise the maximum compensation that financial firms can be forced to pay out by the ombudsman from £150,000 to £350,000.
FCA chief executive Andrew Bailey said: “We recognise it is vitally important for SMEs to have a mechanism to resolve disputes and we are clear the Financial Ombudsman Service is the right route for this.
“The changes we are making are as far as we think we should go within our powers, but they will provide access to the ombudsman service for a significant number of smaller businesses. Before this their only option was potentially a costly legal one through the courts.”
While the All-Party Parliamentary Group on Fair Business Banking (APPG) said it welcomed the news, it falls short of demands for a Financial Services Tribunal that would give firms “quick, cheap, efficient” access to justice if they are mistreated by lenders.
“Scandals such as RBS GRG and HBOS Reading, among others, have shown that it is only a tribunal that can provide a holistic solution to the lack of redress mechanisms for businesses in the UK,” the APPG.
“This tribunal will be the only mechanism, other than the courts, that will be able to compel witnesses, force the disclosure of information and hear judgments in a public court that can influence culture and behaviour”, it added.
“The APPG is pleased to have the support from the FCA … as they recognise that these approaches are complementary and that an extension to the remit alone will only provide a piecemeal and temporary solution.”
It said the ball is now in the Treasury’s court.
Kevin Hollinrake, co-chair of the APPG added: “This is a good first step in the right direction, but taken alone it is not enough.
“It is now up to the Government to step up to the plate by introducing a Tribunal that ensures that a holistic solution is found that provides access to justice for businesses in the UK”.
The plight of SMEs has gained attention in recent years amid scandals that victims say left them out of pocket or bankrupt.
Royal Bank of Scotland’s now-defunct Global Restructuring Group, for example, was accused of pushing firms towards failure in the hope of picking up assets on the cheap, though the FCA said there was no evidence of this, or of dishonesty or lack of integrity.
The FCA this summer concluded that the activities of RBS’s now-defunct Global Restructuring Group (GRG) were not within its remit and that its powers did not apply.
The influential Treasury Committee – headed by Conservative MP Nicky Morgan – has said it was “disappointing and bewildering” that the FCA is not able to act, adding that the case demonstrated the need for change in how lending for SMEs is regulated.
Even RBS chief executive Ross McEwan has called for fresh oversight, despite the bank having dodged disciplinary due to business lending not being regulated by the FCA.
In a recent interview with the Press Association, Ross McEwan admitted that the market sorely required proper checks and routes for complaints.
“I think somebody needs to be there to put a second view around the SME market place,” he said.
“Some sort of regulation around that seems to be needed.”