|By James Hurley
October 24 2018, 12:01am, The Times
An independent review commissioned by the banking industry has warned the government against adopting proposals from MPs and the City regulator for a new tribunal system to help small companies resolve disputes with lenders.
The report by Simon Walker, former head of the Institute of Directors, said a tribunal system would be “expensive for government and for participants”. He also implied that it might do little to address an inherent imbalance in power between small businesses and banks.
Mr Walker was appointed by UK Finance, the trade body for British lenders, after several scandals highlighted the difficulty that business owners face in resolving banking disputes.
The Financial Conduct Authority and the all-party parliamentary group on fair business banking are among the organisations which have supported calls for a tribunal service to be established to give small business owners the chance to have an independent view on their case at a public hearing.
The review acknowledges “inadequate provisions for SMEs seeking to resolve disputes with banks” and a “massive power imbalance.
“Only the richest businesses can contemplate taking a bank to court. A low-cost, rapid and independent vehicle is needed for arbitrating serious disputes between financial organisations and vulnerable companies, especially those employing fifty or fewer people with a turnover of a few million pounds a year,” it said.
However, Mr Walker warned that tribunals were costly to run and “typically require the input of lawyers”. He said he was “not convinced” that employment tribunals have helped balance the relationship between employers and staff, adding that creating an equivalent for small companies would require legislation. “There is no time foreseeable on the parliamentary agenda,” Mr Walker said.
He instead recommended better resources for the Financial Ombudsman Service, Britain’s financial arbiter, to handle complaints from small companies. The FCA has extended access to the ombudsman to an extra 210,000 small and medium-sized companies.
Mr Walker said: “Our recommendations would strengthen the infrastructure available to entrepreneurs wishing to challenge the behaviour of banks. Under the current system, too often SMEs have felt like David against Goliath.”
Kevin Hollinrake, the Conservative co-chairman of the all-party parliamentary group, said the proposals would do “very little to bridge the access to justice gap”.
There are concerns that the ombudsman does not have the expertise to deal with complaints from small businesses, which are often more complex than the ones brought by consumers.
Mr Walker, who will appear before the Treasury committee today to discuss his proposals, said a dedicated division within the ombudsman should be created that would have the skills to resolve small companies’ financial disputes. An “expert advisory panel would be created to provide high-level guidance and deep expertise in complex banking disputes” to this unit.
Banks should agree to a voluntary ombudsman scheme to support medium-sized companies with annual sales of between £6.5 million and £10 million that did not qualify for the extended access to the ombudsman, he added.
Read the story at The Times