The Government’s response demonstrates a fundamental lack of understanding of the challenges that businesses face when resolving disputes with their finance providers. The APPG has held many debates, over numerous years, in which Members of Parliament have spoken about the gap that exists for constituents who want to have their cases heard in a forum that is independent, fair, accessible and affordable and where judgements are made by individuals with the knowledge and capability required to adjudicate complex business banking disputes.
The current proposals on the table categorically do not fill this gap. The question is not, as the Government suggests, whether an ombudsman-style approach is preferable to a tribunal. We have recognised, as have the FCA, that these two approaches are complementary and meet different needs for different types of disputes. The ombudsman provides a quick, affordable and informal mechanism for the vast majority of low-value claims. But the Government must recognise the limitations of an ombudsman-style approach and recognise the fact that the eligibility requirements, and award level limit, create a gap in accessing justice which must be filled by a Financial Services Tribunal.
This position is supported by the FCA, business groups, individual banks, parliamentarians and the Treasury Select Committee. The proposals put forward by UK Finance and supported in the Government’s response are a first step, but they are not enough.
The Co-Chair of the APPG, Kevin Hollinrake MP, said: “It is an entirely unreasonable proposition to suggest that a business with a turnover greater than £10m can be expected to be in a position to go to court. The APPG is frequently contacted by business owners, who have a turnover more than double that figure, but are unable to take a multi-national financial institution to court. There is no way that this can be put forward as a complete solution. “
The Government have stressed that expanding the remit of the FOS will mean that 99% of businesses are eligible to take their complaint to the FOS. This figure is, however, skewed by a large number of small businesses, and still excludes the SMEs that make up the vast majority of the employers and wealth generators in the economy. This figure also ignores the 41% of claims that will be excluded due to the size of the claim[1].
For the avoidance of doubt, the current proposals would not have helped 99% of the constituent cases we have seen.
From an amendment to S138d of the FSMA (2000), decisions will not have to be made on a strict legal basis as it would provide SMEs with a right of action for breach of the Conduct of Business Sourcebook (COBS) rules. The COBS rules form part of the FCA Handbook and set out in detail a regulated firm’s conduct of business obligations, including that ‘A firm must pay due regard to the interests of its customers and treat them fairly’. Decisions will then be able to be made on a ‘fair and reasonable’ basis.
Extending these protections to businesses will not decrease access to lending. On the contrary, expanding these protections will increase confidence in commercial lending and boost demand for credit. The Republic of Ireland regulated their commercial lending in 2015 and have seen a rapid increase in lending over recent years. Indeed, research from the House of Commons Library demonstrates that new SME lending in Ireland Increased by more than 51% from the end of 2014 to the start of 2018.
The regulations in Ireland are designed to protect businesses in distress by laying out clear procedures for the rules that the banks must adhere to, which must also have the core objective of assisting the borrower to resolve their financial difficulties. It is illogical to suggest that a financial institution will restrict lending if they are required to treat their customers fairly and offer them assistance when they are in financial distress.
[1] FCA, Consultation on SME access to the Financial Ombudsman Service and Feedback to DP15/7: SMEs as Users of Financial Services, January 2018.
