FCA may widen SME access to Financial Ombudsman Service

Financial services companies may face more disputes with SMEs after the UK financial regulator proposed widening access to the Financial Ombudsman Service to include business with up to 50 employees.

The Financial Conduct Authority has launched a consultation on widening access to the Financial Ombudsman Service for smaller businesses that have disputes with banks or other financial services providers, which is currently limited to individual consumers and around 5.5m micro-enterprises such as sole traders.

At present, small businesses currently need to any disputes to court, though the FCA said in practice only a very small proportion of SMEs take disputes with financial services firms to court, mainly due to high fees.

Widening access to the ombudsman to SMEs, charities and trusts with fewer than 50 employees, annual turnover of less than £6.5m and gross assets of less than £5m will mean roughly 160,000 additional organisations would be able to benefit.

"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 said.

The FCA, which has regulatory charge of the ombudsman, 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: “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.

"We have considered what could be done within our powers and the remit of the Financial Ombudsman Service to improve this situation and are proposing to expand access to the Ombudsman.”

The FCA said making bigger changes, such as allowing the ombudsman to deal with significantly higher value disputes, would require legislation. It also said the courts remained the "appropriate place" for larger SMEs to carry out disputes, as their bargaining power and organisational resources are generally greater.

Eligibility criteria are one area of the FCA's consultation, with views sought on whether the SMEs should only be required to pass one of the tests of employee numbers, turnover and assets instead rather than all three.

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

The regulator expects the proposals to lead to more SMEs receiving appropriate redress when they have suffered harm due to the actions of a financial services firm, and in time for this to contribute to better services to SME customers in the first place.