Regulator wants ombudsman to handle SME bank complaints

Small businesses in the UK will be able to lodge complaints about banks with an ombudsman and claim compensation up to £600,000 under proposals announced on Monday.

In the wake of lending scandals involving RBS and Lloyds Banking Group, the Financial Conduct Authority said it wanted to extend access to the financial ombudsman from consumers and micro-businesses to about 160,000 small and medium sized enterprises, charities and trusts.

“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,” said Andrew Bailey, chief executive of the UK financial regulator.

“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 ombudsman is an industry-funded body that can award consumers compensation of up to £150,000 if it finds they were mistreated by financial services businesses.

The FCA said in a consultation paper the limit could be raised to £600,000 to cater for higher-value small business disputes. The extra investment needed to boost the ombudsman’s remit “would be borne by the industry . . . through higher fees or levies”.

Some small business customers of RBS allege they were pushed to the brink of collapse and restructured for profit by its defunct Global Restructuring Group.

An independent review commissioned by the FCA found no widespread evidence of systemic misconduct, although parts of the review were not published and the watchdog is still investigating the bank.

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Last February six people were jailed for a total of 47 years over a fraud at the Reading office of HBOS between 2002 and 2007, when struggling small businesses were referred to turnround consultancy Quayside Corporate Services and then saddled with unmanageable debts. Lloyds bought HBOS in 2009.

The FCA said that while businesses were generally given fewer legal protections than consumers “not all businesses are the same, and SMEs often have more in common with individual consumers than larger businesses”.

The regulator defines small businesses as companies with fewer than 50 staff, annual turnover of less than £6.5m and gross assets below £5m.

When it came to their relationship with banks, relatively few such companies “have the necessary bargaining power to negotiate contract terms with large financial firms”, said the FCA.

A spokesman for the financial ombudsman said: “We stand ready to do what the FCA and parliament ask us to do. We’re a flexible organisation used to managing a varying and complex caseload.”