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Industry responds to SME access to the FOS

The FCA last week published a suite of responses it has received to a consultation paper (CP18/3) released in January this year setting out the FCA's proposed changes to the jurisdiction of the Financial Ombudsman Service (FOS) to open the FOS complaints resolution process to small businesses (SMEs).

The fourteen responses published come from a variety of sources from insurers to broker bodies and private individuals, but perhaps the most notable is from the All Party Parliamentary Group for Fair Business Banking (APPG), which has taken a keen interest in the rights of SMEs in recent times, particularly through its work on the RBS Global Restructuring Group (GRG) reports and remediation process.

The APPG's take on CP18/3 and the FOS

The APPG's response is detailed and comprehensive, but the overarching message that comes out of it is that the APPG do not consider that the FOS would be a suitable platform for resolving the kinds of SME complaints envisaged by the FCA in CP18/3.

First, it considers that the FOS would not provide SMEs with a fair basis of dispute resolution. The APPG suggests that the FCA's proposals do not extend far enough to deal with larger SMEs, which would still fall outside the proposed definition of "small business" for the purposes of being an "eligible complainant". It disagrees with the FCA's position that those larger SMEs are capable of pursuing complaints via the courts on an equal footing with the respondent firm. It also highlights that most SME complaints would be concerning redress sums significantly in excess of the FOS's £150,000 compensation limit, which the FCA confirmed was not to be revised in CP18/3.

Secondly, the APPG questions the FOS's capabilities to deal effectively with the types of complaints SMEs would bring. It suggests that the FOS does not have the requisite expertise to assess complaints concerning the more complex financial products and services that SMEs typically buy from firms compared to a typical product taken out by an individual consumer. It also questions the ability of the FOS to turn complaint assessments around in a timely fashion. These are both critical factors that need addressing, given SMEs' complaints will often involve "life changing" amounts of money or potential insolvency.

The upshot is that the APPG's response to the FCA's proposals is centred around a concern that the FOS is either "not the right mechanism" for the resolution of the types of complaints SMEs will likely bring, or that it requires a significant change in terms of process and personnel for the FCA's proposals to work for the SME community.

Other responses

Unsurprisingly given the variety of sources, other respondents' comments to CP18/3 were mixed. Several raise concerns that the FOS's current redress limit is too low, while others agreed it remained at the right level on the basis that any complaint of higher value should properly be assessed by the courts. As one might expect, those respondents sitting on the complainant side of the fence thought that the FCA's proposed timeframe for implementing the proposals was unnecessarily long, whereas firm respondents wanted to stretch the timeline out to allow a transitional period for their businesses to adapt.

However, a common theme does emerge (and falls in line with the APPG's views) that generally respondents are overwhelmingly concerned with the FOS's capability (both in expertise and resource terms) to deal with the types of complaints that would come to the FOS under the FCA's proposals. Whether that concern is justified or not, respondents were fairly consistent in identifying reasons why the FOS in its current form would not be adequate should its jurisdiction be expanded in the way envisaged by CP18/3.


The FCA might have expected focussed responses to its specific consultation questions, but perhaps it did not expect such a raft of general comments on the capabilities (or incapabilities) of the FOS. There is clearly a concern on both sides that the FOS in its current form will not be able to adequately deal with assessing SME complaints. The FCA's Policy Statement following CP18/3 is due to be published this summer and it will be interesting to see how this concern is addressed if the proposals in their current form are pushed through.

The APPG is also closely involved with Simon Walker CBE's independent review into complaints and alternative dispute resolution in the SME market, commissioned by UK Finance. That review was cited by the FCA in CP18/3 and is specifically looking at whether the FOS is the correct forum for resolution of SME banking complaints, or whether a novel, alternative structure should be put in place (for example, a tribunal). Depending on the timing of Mr Walker's report, it might cause the FCA to pause for thought before progressing further.

For further advice and information, please do not hesitate to contact Paul Gair, Partner or Jack Hargreaves, Solicitor.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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