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The changing landscape of SME banking disputes: Industry views

Recently we hosted a panel event: The Changing Landscape of SME Banking Disputes. A broad mix of banking and industry clients and stakeholders, together with a panel that provided genuine insight, made for an interesting evening of good debate. Read on for some of the key themes that came out of the discussion.

A voluntary ombudsman scheme or a financial services tribunal?

Using interactive polling software Slido, the audience was polled on whether a further expansion of the FOS to cover SMEs up to £10m turnover, a separate voluntary ombudsman scheme or a financial services tribunal (incorporating an extension of regulation to commercial lending) was most appropriate to deal with larger/more complex SME banking disputes. Perhaps unexpectedly, the result was a close call, with a tribunal system ultimately being preferred by a slim margin.


What was clear both from this result, and some of the questions that featured in the later panel discussion, was that there remain
s a diverse range of views about how the industry and regulator should deal with complex/larger SME complaints. Whilst a voluntary scheme based upon an ombudsman-style format and a "fair and reasonable" test may in some quarters be seen to be the industry preference, advocates of a tribunal system remain somewhat sceptical. The APPG on Fair Business Banking (long a promoter of the tribunal format) may seek support from industry advocates to persuade the Treasury and FCA to change their stance. Albeit, our view remains that the Treasury and the FCA are unlikely to move too far from their current position.

At the event, it was made clear that, whilst there were a range of views, the outcome of the industry consultation resolved that a voluntary ombudsman scheme (perhaps alongside a voluntary ADR process for legacy complaints) was preferable to a financial services tribunal.

Regulation of commercial lending?


Continuing the theme, another interesting Slido poll result was that 46% of the audience voted "yes" to the question: "Should commercial lending be regulated?"  At face value, that may seem surprising given the position of many FS institutions, but it does serve to highlight the differing views not just across all stakeholders, but also within individual institutions. The (slim) majority view remained that regulation of commercial lending should be avoided, and reasons for this ranged from the unintended consequence of the costs of regulation being passed on to customers, and regulation inevitably leading to a substantial reduction in lending to a key part of the UK economy at a critical point in time. In addition, it was felt that regulation at the current time would be unlikely, not least because there will be little parliamentary bandwidth available for the foreseeable future, and no government appetite at present to expand the regulatory perimeter in any event.

SME banking complaints will be more complex

A theme that both our audience and speakers were concerned with was the expectation that SME banking disputes are generally more complex than consumer and micro-enterprise complaints. That said, there was recognition that many complaints that will fall within the new "small business" jurisdiction for the FOS may not be complex because complaints relating to legacy issues will fall outside of the expanded jurisdiction (which only applies to acts or omissions from 1 April 2019).

Having said that, with the potential voluntary extension to cover disputes from larger SMEs, any new ombudsman arrangement will have to be equipped to deal with more complex complaints.

Separately, there was a lot of discussion about the preparations the FOS is making for its expanded small business jurisdiction which will ensure that the ombudsman is prepared for 1 April 2019

Looking to the future

It was acknowledged that there remained an element of distrust between the SME community and the banking industry, which will not simply be resolved by the expanded FOS jurisdiction and the voluntary ADR processIt was suggested that the current proposals and developments should be seen as a step towards rebuilding a mutually beneficial relationship with the SME community, and that would rightly (and necessarily) take time. The point was made, however, that, the establishment of better access to complaints resolution services for SMEs should be welcomed particularly in the light of potentially uncertain times for SMEs in the face of challenging economic headwinds. Another strong theme that emerged is that there is a strong desire to draw a line under any past issues and move forwards.

Should you wish to discuss further any of the issues above or the developments in SME banking disputes more generally, please do contact us.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions


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