Complaining to the Financial Ombudsman to be made easier for SMEs

published 2 November 2018

920_MW_P34_SB — The blockage in the complaints process is clearing

Thousands of small businesses in dispute with financial-services companies will soon have access to a statutory complaints service. The Financial Conduct Authority, the chief City regulator, is to extend significantly the remit of the Financial Ombudsman Service (FOS) so that it covers more than 200,000 small and medium-sized enterprises (SMEs) not currently entitled to use the system.

The FOS, best known for providing a free dispute resolution service for consumers with a complaint about firms such as banks, insurers and investment managers, already accepts complaints from "micro enterprises". But for now any firm with more than ten employees or assets of more than €2m falls outside the scheme's remit.

From next April, however, the FCA will change the rules to allow much larger businesses to complain to the FOS. Any firm with an annual turnover of less than £6.5m, fewer than 50 employees, or assets of less than £5m will be entitled to bring a complaint to the service. The changes will give an additional 210,000 SMEs access to the scheme, estimates the regulator.

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Breakthrough for SMEs

The announcement marks a significant breakthrough for SMEs. Although the FOS's remit only extends to regulated financial services, many smaller businesses have found it very difficult to make a successful complaint about such companies. The banking sector, in particular, has been involved in a series of high-profile scandals where SMEs have lost out.

Moreover, while small businesses do already have the option of taking legal action against financial-services companies, the cost of doing so is very high. Even where UK SMEs are successful in such cases, the cost of bringing a claim accounts, on average, for 44% of its value, according to research from the World Bank.

The FCA's plans are in line with recommendations made last week by Simon Walker, the former head of the Institute of Directors, who was commissioned by the banking industry to investigate possible means for providing SMEs with simpler access to redress. Walker's review rejected calls for a tribunal system to intervene in disputes between small businesses and their banks, arguing in favour of an increased role for the FOS. A second recommendation from the review, a voluntary ombudsman scheme for SMEs with an annual turnover of between £6.5m and £10m, has yet to be adopted by the banks.

Meanwhile, SMEs are also beginning to exercise new rights to complain about late payments. The Small Business Commissioner, set up by the government last year, has begun to intervene in late-payment cases. The service accepts complaints from SMEs with fewer than 50 employees about delayed payments from large businesses based in the UK. Roughly 5.7 million SMEs are entitled to complain to the commissioner, estimates the government.

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.