By James Hurley
​October 17 2018, 12:01am, The Times
​The City regulator said that the Financial Ombudsman Service would be extended from April next year, so more companies can seek redress if they believe that they have been mistreated by their financiers.

Businesses with annual sales below £6.5 million and fewer than 50 staff, or an annual balance sheet below £5 million, will be able to use the ombudsman. Only those with fewer than ten staff and a balance sheet of up to £2 million qualify at the moment.

The Financial Conduct Authority added that it was consulting on raising the maximum amount of compensation that the ombudsman can require financial services firms to pay from £150,000 to £350,000.

The ombudsman, which is free to access, is seen as a more realistic route of redress for most companies than taking a complaint through courts.

The move comes after scandals such as the wholesale mis-selling by banks of interest rate swap products to tens of thousands of small businesses and the mistreatment of companies by a restructuring unit at Royal Bank of Scotland. In the wake of these episodes, it became clear that very few companies could afford to access the courts, while voluntary compensation schemes set up by banks have been undermined by their lack of independence.

The extension of the service follows increased debate over whether commercial lending should become a regulated activity to provide more protection for the owners of small companies.

Ross McEwan, chief executive of RBS, said last week that there was a need for “some sort of regulation” of small business lending.

Representatives of small companies welcomed the Financial Ombudsman Service extension, but there are question marks over whether the ombudsman will be in a position to handle the additional workload. This year, it has had to fend off allegations that poorly trained staff with little grasp of financial products have been ruling whether claims should be upheld and that it unduly favours banks in its decisions.

A review published in July found that there was no institutional bias against consumers at the service, but it highlighted concerns about the level of knowledge of some investigators.

Representatives of small companies said that the ombudsman would have to be improved before it could be relied upon to take on higher-value and potentially more complex claims.

Andrew Bailey, chief executive of the FCA, said: “The changes are an important extension of the ombudsman service’s role and remit. We will work closely with them to ensure that they are ready, so that [small businesses] are able to benefit from the new rules as soon as they come into force.”

The FCA said that the ombudsman was now in a position to prepare for the extension, including hiring additional staff with the skills and experience required.

Nick Stoop, of Warwick Risk Management, which helps companies with claims against banks, said that in his experience the ombudsman process was “inherently unfair” and that extending its jurisdiction could “create even more suffering” for small companies.

“The process is systematically distorted in favour of the banks,” he said. “A particularly discreditable aspect of the process is that the Financial Ombudsman Service [has sometimes relied] on material provided by the bank on the condition that that material is not shared with the claimant.”

The all-party parliamentary group on fair business banking said that the move should be seen as an “excellent first step” towards better treatment of small companies, not a “standalone solution”. The group met John Glen, the Treasury minister, yesterday to discuss the creation of a “full financial services tribunal” that would give small business owners the chance to have an independent view on their case at a public hearing.

Mr Bailey said: “The changes we are making are as far as we think we should go within our powers, but they will provide access to the ombudsman service for a significant number of smaller businesses. Before this, their only option was potentially a costly legal one through the courts.”

Over to the government
The all-party parliamentary group on fair business banking is leading calls for the creation of a tribunal service that would give small companies a new route for challenging errant lenders (James Hurley writes).

The tribunal should have the power to “compel witnesses, force the disclosure of information and hear judgements in a public court that can influence culture and behaviour”, it believes. The Financial Conduct Authority has indicated that it would back such a move.

Kevin Hollinrake, co-chairman of the parliamentary group, said it was now “up to government to step up to the plate” and create legislation for a tribunal.

Several high street banks have also indicated cautious support for the idea. However, there is nervousness among lenders about the basis on which cases would be judged. There is no legal principle that small and medium-sized companies are owed a duty of care, or even fair treatment, by their commercial lender.

Creating a fairness test for the purposes of the tribunal could confuse the landscape and even deter banks from lending, financial services firms have indicated.Read the story at The Times