Greater access for businesses to the Financial Ombudsman Service

The current Financial Ombudsman Service (FOS) Rules only allow businesses classed as “micro-enterprises” to participate in the FOS complaint redress scheme. At the end of January 2018, the Financial Conduct Authority (FCA) opened a consultation on proposals that would extend access to the FOS to a much larger group of businesses.
The FCA consultation identifies that “small businesses often have more in common with individual consumers”, and “small businesses that buy or use financial products behave similarly to consumers and can experience harm in similar situations”. It recognises that harm to small businesses can be severe and small business have fewer options for redress than large corporations: currently they have no access to the FOS and too often, for legal or commercial reasons, they are effectively excluded from seeking redress through the courts.
To assist small businesses, the FCA proposes to introduce a new category of “eligible complainant” to the FOS access rules to include those with:
• Annual turnover of less than £6.5million
• Annual balance sheet total of less than £5million
• Fewer than 50 employees
The FCA’s intention is for a small business which satisfies all three of these criteria to have access to the FOS. Exclusions that apply to micro enterprises currently will also apply to small businesses i.e. time limits and small businesses which have “partner” or “linked enterprises” taking them above the thresholds would be excluded.
The consultation document confirms, that “Complaints about alleged firm misconduct in relation to certain unregulated products and services, including corporate loans, are within the FOS remit”. This alludes to the fact that the FOS jurisdiction (which is set out in the FCA DISP Rules) is, in certain respects, wider than the categories of investment / financial product actually regulated by the FCA. For example, the FOS can consider complaints about “lending money secured by a charge on land” and “providing ancillary banking services”, both of which are fairly wide categories of potential complaint relevant to small businesses, but both of which cover subject matters wider than products strictly regulated by the FCA.

If and when the FOS jurisdiction is widened, therefore, it will enable small businesses to have complaints about secured loans and their general banking relationship and treatment looked at by an independent third party without incurring the significant adverse cost risk of litigation. When looking at such complaints the FOS will take into account the factual background and any contractual documents and legal precedents (in the same way as a Court would), but can also look at wider issues including a Firm’s internal processes, industry standards and their own guidance on similar complaints with the over-riding aim of achieving a result which is fair and reasonable.

The consultation closes on 22 April 2018, and the FCA’s intention is to issue a policy statement during the summer with the proposed changes to come into effect on 1 December 2018. At present, it looks as though the changes will not be retrospective, so this widening of access may not assist businesses who have complaints to pursue now.

Claire Collinson Legal regularly advises small business on complaints about banking and financial products, including options for seeking redress which includes looking at FOS eligibility and jurisdiction issues.

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