Banking and finance industry agrees a series of voluntary proposals to deliver stronger, fairer outcomes for more SME customers including:

  • Supporting the proposed extension of the Financial Ombudsman Service (FOS) to provide more SMEs with access to a simple and independent complaints review and redress mechanism;
  • Providing a voluntary ombudsman scheme offering support to larger SMEs that are not eligible to complain to the FOS or captured under the extended scope of the FOS coming in to effect in April 2019;
  • Backing a historic review of unresolved SME complaint cases since 2008; and
  • Establishing an independent SME advisory council.

Small and medium size enterprises (SMEs) with a turnover between £6.5 million and £10 million and a balance sheet up to £7.5 million will soon be able to have their banking and finance disputes reviewed and redressed through alternative dispute resolution arrangements, following the creation of a specialist ombudsman service with the expertise and powers to address larger and more complex cases for eligible SMEs.

UK Finance, the trade body that represents the banking and finance industry, has today set out its response to the recommendations of Simon Walker’s independent Review (the “Review”) of alternative dispute resolution (ADR) for SMEs. These proposals have been developed with the agreement of the seven main SME banking providers*. The Review provided valuable insight into the impact of the financial crisis on SMEs and the subsequent hardship experienced by a number of individuals and businesses involved. UK Finance and its members acknowledge there are valuable lessons to be learned from how the industry responded and are determined to improve the future handling of banking complaints for the vast majority of SMEs by delivering a series of proposals to deliver stronger and fairer outcomes for these customers.

These include an industry-wide commitment to forward looking dispute resolution for SMEs while supporting the extension of the Financial Ombudsman Service (FOS) to provide more SMEs with access to a simple and independent complaints review and redress mechanism.

In addition, the industry has committed to establishing an independent review process for unresolved legacy complaints brought forward by SMEs since 2008. This is alongside the creation of an independent SME advisory council with the ability to consider the treatment of SME customers and emerging issues and trends.

Backed by the seven initial participating banks UK Finance’s proposals are:

  • Support for the extension of the scope and capability of the FOS to enable a significantly strengthened service for businesses with turnover of up to £6.5 million and balance sheets up to £5 million, covering 99.5 per cent of all existing SMEs. The industry supports the implementation of the Financial Conduct Authority’s (FCA) proposed expanded scope and mandate from April 2019. Under this expansion, 99.5 per cent of all SMEs would be able to access an enhanced, business focused independent complaints review and redress mechanism via the FOS.
  • Provide access to an appropriate ombudsman scheme for SMEs with turnover of between £6.5 million and £10 million and a balance sheet up to £7.5 million. The industry commits to supporting the establishment of a suitable ombudsman scheme for larger SMEs that meet the eligibility criteria. These firms will be able to have their complaints reviewed and redressed through the creation of a specialist ombudsman service with the expertise and powers to address larger and more complex cases for eligible SMEs, funded by the banking and finance industry. These criteria are in line with the findings that the Review identified based on Legal Services Board surveys about the threshold above which court processes ought to be accessible to businesses.

    The industry believes that the natural home for the ADR mechanism for this cohort of businesses is within the framework of the FOS. However, the industry has agreed to support and fund an interim voluntary ombudsman with an aim to deliver the arrangement by September 2019 and will work with all stakeholders with input from government and regulators to develop the necessary proposals as quickly as possible.This new scheme will recommend appropriate awards for redress, which will be binding on banks up to a new higher level of £600,000 (meaning the bank cannot appeal any award up to this threshold). As with the current FOS binding award levels both parties can appeal over this threshold and the SME can still go to court if it wants to pursue an award above the threshold.

  • Voluntary business ombudsman scheme for eligible historic cases. In support of addressing the concerns set out in the Review regarding the historic treatment of customers, the largest UK banking providers have agreed to support the establishment of a voluntary and independent dispute resolution service (DRS) for reviewing unresolved historic complaints brought forward by SMEs. This will cover disputes involving SMEs that have arisen since 2008 and have not already been addressed by an independent review process.

To deliver these new voluntary arrangements, the industry will establish an independent Implementation Steering Group to undertake further work to develop the scope, operation and funding of the scheme for eligible historic cases; and to develop and implement the voluntary ombudsman scheme refining the application, delivery and funding of a voluntary ombudsman scheme for SMEs with turnover of between £6.5 million and £10 million and a balance sheet up to £7.5 million.

The Steering Group will be established and commence work in December 2018. It will be chaired by a suitably independent individual with the requisite skill and experience and supported by an independent secretariat. UK Finance and its members will seek to work with the Co-Chairs of the All-Party Parliamentary Group on Fair Business Banking and representatives from the British Chambers of Commerce and the Federation of Small Business, acting in consultation with HM Treasury, the FCA and the FOS as appropriate to select the Chair.

The industry is aiming to implement these voluntary ombudsman arrangements by September 2019.

Independent SME Advisory Council. The industry will also support the creation of an independent and transparent advisory council with the ability to consider emerging trends and issues regarding access to finance, the treatment of SME customers by financial services providers and the provision of appropriate support to SMEs to ensure there is an ongoing dialogue to address potential challenges early and effectively.

Commenting on the recommendations, Stephen Jones, UK Finance CEO comments: “SMEs are essential to the success of our economy. It’s therefore vital that lessons are learned from incidents of poor treatment of SMEs by the banking industry and that future redress schemes are fit for purpose. The Review made a number of important recommendations on how to do this which the industry is committed to taking forward to deliver stronger and fairer outcomes for SME customers.

“Supporting and delivering a new mechanism to provide access to alternative dispute resolution for businesses outside the current FOS remit as well as providing a review mechanism for unresolved historic complaints is just one important part of the industry’s commitment to serving SMEs better.

“These are significant steps in restoring trust between SMEs and the financial industry. We will now work closely with business groups, the government and regulators to deliver these important changes as quickly as possible.”

Adam Marshall, Director General of the British Chambers of Commerce, said: “We welcome these important moves to build greater confidence between business and banks, following a period where some longstanding business banking relationships have faced challenges.

“Providing businesses with a route to address historic problems quickly and fairly is a particularly important step, but so too is the creation of a strong dispute resolution process for the future. It will be critically important for banks to ensure their business customers are aware of these new routes to resolve disputes, which will strengthen the confidence of many SMEs.”

Matthew Fell, CBI Chief UK Policy Director, said: “These recommendations are steps in the right direction. The issue of SME banking disputes remain a critical issue for business. If we are to continue to rebuild trust between SMEs and the banks that serve them, we need solutions that not only deal with the legacy of the past but also are capable of facing the challenges of tomorrow.

“A mechanism that can provide swift, fair and reasonable adjudications to deal with complex disputes will build on the welcome extension of the remit of the Financial Ombudsman Service. Whilst there remains much to be done, the banking industry’s response is building a platform for the future.”

Notes to Editor

  1. The seven initial participating banks are: Barclays, CYBG, Danske Bank, HSBC UK, Lloyds Banking Group, Royal Bank of Scotland, Santander UK
  2. The independent Walker Review was commissioned by UK Finance in 2018, to provide an evidence-based, comprehensive analysis of the scale and complexity of banking complaints from SMEs. Simon Walker was appointed by a panel including the APPG on Fair Business Banking and Federation of Small Businesses. The review focuses on banking disputes between financial services providers and small business customers that remain unresolved through the normal customer complaint procedure that may be unsuitable for court processes.
  3. A key objective of the Walker Review, which was also referenced in the FCA’s policy statement on SME access to the FOS, was to identify solutions that would be capable of producing fair outcomes for both SMEs and providers.
  4. UK Finance is a trade association formed on 1 July 2017 to represent the banking and finance industry operating in the UK. It represents more than 250 firms in the UK providing credit, banking, markets and payment-related services. The organisation brought together most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association.
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Banking industry to fund new alternative dispute resolution (ADR) scheme for larger SMEs