The Financial Conduct Authority (FCA) has confirmed plans to extend access to the Financial Ombudsman Service (FOS) to more small and medium-sized enterprises (SMEs).

The changes will mean that SMEs with an annual turnover below £6.5m and fewer than 50 employees, or an annual balance sheet below £5m will now be able to refer unresolved complaints to the ombudsman service.  Under the ‘near-final’ rules published today around 210,000 additional UK SMEs will be eligible to complain to the ombudsman service.

Respondents to the FCA’s January 2018 consultation strongly supported the extension of the ombudsman service to larger SMEs, charities and trusts, and a new category of personal guarantors.  The changes will allow a wider number of SMEs to access the service, so they can seek redress.  The criteria for access to the service have been amended so that SMEs must only meet the turnover test and one of either the headcount or balance sheet total tests, not all 3 tests as previously proposed. The FCA made this change in response to feedback that applying all 3 tests would unfairly exclude certain types of SME, for example those with relatively low turnover but 50 or more employees.

Andrew Bailey, Chief Executive of the FCA said “We recognise it is vitally important for SMEs to have a mechanism to resolve disputes and we are clear the Financial Ombudsman Service is the right route for this.  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.”

“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 SMEs are able to benefit from the new rules as soon as they come into force.”

The FCA has published near-final rules, so the ombudsman service can start taking practical steps towards putting the extension of its remit in place, including starting recruitment of additional staff with the skills and experience required.  The FCA intends to publish final rules later this year, following its normal scrutiny of the ombudsman service’s draft business plan and budget.  We expect the final rules on the SME extension to come into force on 1 April 2019.

Together with the near-final rules, the FCA has published a consultation on raising the maximum amount of compensation the ombudsman service can require financial services firms to pay out from £150,000 to £350,000.

Responding to plans Stephen Pegge, Managing Director, Commercial Finance, UK Finance said “We support the FCA announcement today to allow more SMEs greater access to the Financial Ombudsman Service and we have been working with the government and regulators to develop these important reforms. We acknowledge where complaints go unresolved or cannot be dealt with by internal procedures, further changes may be needed. This is why the industry has commissioned an independent review of the dispute and ADR landscape led by Simon Walker CBE, to provide an in-depth analysis of the scale and complexity of banking complaints from SMEs.”

“This will include robust recommendations and practical solutions to address these issues and ensure fairer outcomes for SMEs. The findings of the review are expected to be published later this month.”