Small firms face justice gap due to ombudsman decision

26th October 2023

Small companies have been left with “nowhere to turn for justice” during banking disputes following a decision not to extend the reach of the Financial Ombudsman Service, according to an Federation of Small Businesses.

The Financial Conduct Authority (FCA) has decided that it would not be proportionate to provide access to the ombudsman’s dispute resolution services to companies that do not meet the existing thresholds. The FCA had widened access in 2019 to include small businesses with annual turnover of less than £6.5m and either fewer than 50 employees or a balance sheet smaller than £5 million

The Federation of Small Businesses (FSB) has called on the Government to legislate for a banking tribunal service to be funded by a levy on the banking sector, to address the lack of success of the Business Banking Resolution Service and the inability of most companies to afford action in the civil courts.

Tina McKenzie, Policy Chair, Federation of Small Businesses (FSB) said “This FCA decision means many SMEs involved in banking disputes will be forced to take the risk and expense of taking their bank to court

“Even businesses towards the larger end of the SME scale may still encounter a considerable imbalance of power when going up against banks, with their enormous legal resources. A small business will just not be able to sustain a drawn-out legal dispute, with all its associated costs in terms of money, time, and stress.”

“That’s why the Financial Ombudsman Service is so important, and why it should be a route open to many firms who are currently excluded from it by virtue of their turnover.”

“The option set up by the banks themselves to try and resolve disputes for SMEs unable to go to the FOS, the British Banking Resolution Service, was well-intentioned but ultimately not successful to the scale needed. This has left a justice gap, causing much disquiet among the small business community.”

“If the FOS thresholds aren’t to be increased, another solution is needed to keep cases out of the overburdened courts system. We are calling on the Government to legislate to create a banking tribunal service, to be funded by a levy on the banking sector, with the expertise and the capacity to take on larger and more complex cases.”

“If small and medium-sized firms are to borrow to invest, they need to have confidence that – if a dispute with their bank arises – they will be able to seek a fair resolution. The FCA’s decision will further weaken that confidence, and will hold back our overall economic growth as a nation.”