Dispute resolution options open to business were haphazard and woefully inadequate.

Previously, in the event of a dispute with their banking providers, businesses had to rely on the Financial Ombudsman Service (FOS), which could only act in cases of microbusinesses with fewer than 10 employees and a turnover less than €2m and it could only award compensation up to a value of just £150,000, an insufficient amount for many complex business banking disputes.

The Financial Conduct Authority (FCA) does not regulate most of the commercial lending sector. It is therefore unable to intervene until it acknowledges a market failure of immense size in terms of the total economic detriment or the number of affected consumers, such as the scandals involving Interest Rate Hedging Products and Royal Bank of Scotland’s Global Restructuring Group. By this time the worst damage has been done.

Beyond the FOS, there is usually just one alternative open to a private business if it is to stand a chance of resolving any kind of financial dispute: litigation. It must be prepared to go to court as though it were the contractual equal of its lender, usually with a huge disparity in financial capability, knowledge and standard of legal representation. This is just not a realistic option for the vast majority. Quite simply justice is inaccessible and unaffordable to most businesses in this situation. What started out as an uneven playing field becomes a mountain. It is not just owners, directors and customers of that business that are disadvantaged; its work force and entire supply chain are made vulnerable.

Fair Business Banking for All

To fill the gap in accessing justice and provide SMEs with confidence in their banking providers once again, the APPG produced their Fair Business Banking for All report, published by the Centre for Policy Studies, which outlined policy proposals to reform the dispute resolution landscape for SMEs.

The report called for the establishment a comprehensive Financial Services Tribunal with the legal powers required to force the disclosure of information and the attendance of witnesses, with the default position being that the losing side would not have to pay the other side’s costs to remove the element of risk for the claimants.

The report also recognised the regulatory void in business lending which denies many business customers the legal right to challenge their financial service provider in the event of a dispute and called for an enhancement in the legal rights of SMEs so that they have the legal right of action for breach of FCA rules and the FCA’s ‘Principles for Businesses’.

Reforms

As a result of the APPG’s campaigning, the FCA announced in October 2018 that they will extend access to the FOS to include businesses with a turnover of £6.5m and with fewer than 50 employees. They also increased the claim limit to £350,00. They did, however, also recognise the need for a complementary tribunal and supported our proposals.

The Treasury Select Committee’s SME Finance Inquiry supported our proposals by concluding that a tribunal is urgently required and must be accompanied by an amendment to s138D of the Financial Services and Markets Act (2000) to enhance the legal rights of SMEs.

In addition to support from the FCA and the Treasury Select Committee, The APPG secured the support of key stakeholders including SME Alliance, the FSB, TSB bank, Metro bank and the Small Business Commissioner.

The Chancellor of the Exchequer announced, in the Autumn budget, that the industry had agreed to establish a new Business Banking Resolution Service (BBRS) which will include a historic compensation scheme and a forward-looking dispute resolution service for larger businesses with a turnover up to £10m. The APPG contributed to the steering group tasked with designing and implementing both schemes and it will be operational at the end of 2019.

Funding

The APPG’s report was funded by a one-off contribution by RBS. They did not have any influence on the terms of reference for the report nor its content at any stage.