CITY watchdog the Financial Conduct Authority (FCA) has launched a consultation on whether to give more small firms access to the Financial Ombudsman, making it easier for them to resolve disputes without going to court.
The Financial Ombudsman Service (FOS) is the body that handles complaints about financial services firms. Currently only individual consumers and around 5.5 million micro-enterprises can use it to resolve disputes. Business that cannot access the Ombudsman have to go through the courts, which can be costly, and the FCA says many smaller businesses would struggle to do this in practice.
Under the changes the FCA is considering, businesses with fewer than 50 employees, annual turnover below £6.5m and gross assets below £5m would become eligible to refer complaints to the Ombudsman.
This would mean around 160,000 small- and medium-sized enterprises (SMEs), including many peer-to-peer platforms and borrowers, as well as trusts and charities, would be able to use it.
The Ombudsman can consider complaints about any regulated activity and some that are unregulated, 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, as long as 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 consultation, announced on Monday, follows a review of the protections available to SMEs as users of financial services.
The FCA is asking for responses to the consultation by 22 April 2018 and intends to publish a policy statement making final rules in summer 2018.
According to its 2016/17 annual review, the Financial Ombudsman handled more than 321,000 complaints, noting a rise in consumer complains about PPI, travel insurance and guarantor loans, and small businesses reporting losses from hoax websites.
Conrad Ford, founder of business finance aggregator Funding Options, welcomed the new proposals.
“These proposals are extremely good news for small businesses,” he said. “Many more SMEs will now have access to a much quicker and cheaper way to resolve disputes with banks.
“It makes no sense that owners of small companies are given extensive protections when purchasing financial products as consumers, yet are assumed to be sophisticated financial experts when acting as company directors.
“The current contradictory position is untenable, and it appears that the FCA agrees.”