FCA Closes the Door on Opening up Ombudsman Service

SMEs are the backbone of the UK's economy, with the country reliant on them for job creation and economic growth. But for these businesses, financial disputes can be a daunting prospect, given the high costs and complexities involved in going through the court system.

The Financial Conduct Authority (FCA) introduced the Financial Ombudsman Service (FOS) in 2000 to provide an alternative avenue for resolving such disputes. However, the recent decision from the FCA not to expand SMEs' access to the FOS has raised concerns.

Current Support ‘Sufficient’

In 2018, the FCA took a big step by allowing SMEs with a turnover below £6.5 million or fewer than 50 employees to access the FOS. This expansion aimed to provide a cost-effective and efficient avenue for smaller businesses to resolve disputes with financial institutions.

The FCA estimated that these criteria applied to the vast majority of 5.6 million private sector businesses in the UK.

In a recent announcement, the FCA revealed that it has decided against further expansion of access to the FOS for larger SMEs. The regulator believes that the existing criteria are sufficient and extending access wouldn’t be proportionate. The FCA also pointed out the existence of the Business Banking Resolution Service (BBRS) as support for bigger firms.

Complaints from Industry Groups

Various business groups have expressed concern regarding the FCA's decision. William Wragg MP, who chairs the Fair Business Banking Parliamentary Group, said: “Small businesses have been left to fend for themselves yet again. If we want to encourage growth and innovation, we have got to give SMEs the reassurance that any dispute with their lenders will be dealt with fairly and efficiently.”

Policy Manager at the British Chamber of Commerce (BCC) Jonny Haseldine added: “Tens of thousands of firms are still in danger of falling through the cracks.”

Litigation ‘Unsustainable’

For SMEs that fall outside the FOS criteria, the option of litigation can be a challenging path. Court proceedings are often a heavy financial burden - not to mention time-consuming and stressful. The discrepancy in resources between SMEs and financial institutions puts small businesses at a disadvantage.

Tina McKenzie of the Federation of Small Businesses (FSB) said: “A small business will just not be able to sustain a drawn-out legal dispute, with all its associated costs in terms of money, time, and stress”.

The FSB has since called on the Government to open up a banking tribunal service which would be able to take on more complex cases. This proposal seeks to bridge the gap and ensure a fair and efficient resolution of disputes.

The Road Ahead

The FCA's recent decision not to expand SMEs' access to the Financial Ombudsman Service has raised concerns with SMEs and business groups. Businesses that don’t meet the existing criteria may find themselves at a significant disadvantage in financial disputes.

To promote growth and provide SMEs with the reassurance of a fair resolution, further steps could be necessary. This could include the creation of a banking tribunal service, as suggested by the FSB. Finding effective solutions to address these concerns could prove crucial for the prosperity of the UK's SMEs.

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Sam White