Small and medium enterprises would be allowed to lodge complaints about financial services companies free of charge and pursue redress of up to £150,000 without resorting to the courts, under plans unveiled by the Financial Conduct Authority.
The FCA has today (22 January) launched a consultation on plans to give more small businesses access to the Financial Ombudsman Service, in a bid to improve the way the financial sector handles complaints from this group.
This follows a review of the protections available to small and medium sized enterprises (SMEs) as users of financial services, which began in 2015.
The ombudsman provides an independent dispute resolution service. It is free for those making a complaint.
Recourse to the Fos is currently only available to individuals and around 5.5 million micro businesses where they have an unresolved dispute with a financial services firm.
Under the changes proposed by the FCA, approximately 160,000 additional SMEs, charities and trusts would be able to refer complaints to the ombudsman.
Businesses with fewer than 50 employees, annual turnover below £6.5m and an annual balance sheet (i.e. gross assets) of less than £5m would become eligible to take their complaints to the Fos.
The Ombudsman can consider eligible complaints about any regulated activity, and 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.
If passed as planned the new rules will come into force on 1 December 2018.
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."
According to the consultation paper, the principle behind the planned changes is that while "larger SMEs will have the bargaining power, organisational resources and understanding of financial services to protect their interests in disputes with firms", smaller businesses "struggle to resolve disputes with financial services firms through the courts and have few alternative routes to seek redress".
The proposals will provide access to the ombudsman for more than 80 per cent of the approximately 200,000 SMEs who are not currently eligible, the FCA stated.
"Many SMEs that buy or use financial products behave similarly to individual consumers, and can experience harm in similar situations," the consultation paper stated.
When things go wrong only a very small proportion of SMEs take their disputes with financial services firms to court, it added, citing World Bank estimates that taking a dispute to court might cost an SME in the UK up to 44 per cent of its claim.
The regulator said its intervention, if successful should improve the way financial services businesses handle SME complaints, which may in turn lead to fewer complaints in the first place, and a better standard of service for SME customers in this space.
In the short term it expects the number of SME and guarantor complaints considered by the ombudsman to increase. Some complainants will receive redress when they previously would not have, it added.
