More firms gain access to financial arbitration services against banks
More small companies in Britain will be entitled to free arbitration services in any dispute with banks, enabling them to avoid the costly process of going to court.
The Financial Conduct Authority (FCA) also proposed more than doubling the amount of potential compensation for small companies in such disputes to £350,000 from £150,000.
From next April firms with fewer than 50 employees and annual turnover of less than £6.5 million, or an annual balance sheet below £5 million pounds, will be able to use the Financial Ombudsman Service (FOS), the FCA said.
Individuals who act as personal guarantors for loans to businesses they are involved in will also become eligible.
The FCA said an additional 210,000 small companies would be eligible to use the FOS.
The FOS deals with complaints that have not been resolved between regulated financial firms and customers. Without access to the FOS, a business would have to take a bank to court.
FOS chief executive Caroline Wayman said she welcomed the opportunity to help more small businesses get treated fairly.
Currently only individuals and very small firms with fewer than 10 staff and a balance sheet of up to £2 million can use the FOS, which has powers to arbitrate on a complaint and order compensation.
The regulator has come under pressure from MPs to widen access for smaller firms to the FOS after customer mistreatment scandals at Royal Bank of Scotland and Lloyds, both of which were bailed out by taxpayers in the financial crisis.
The FCA published the new rules following a public consultation that had originally proposed a firm meets all three new thresholds.
MPs, however, have expressed doubts about the FOS’s ability to cope with a wider remit and have proposed a bank-funded tribunal service, a step that would need legislation.
“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,” said FCA chief executive Andrew Bailey.
“The changes we are making are as far as we think we should go within our powers.”
The FCA also proposed adjusting the potential compensation figure for inflation annually.