SME Access to the Financial Ombudsman Service – Near Final‐Rules Summary

The Financial Conduct Authority (FCA) is going ahead with plans to give small and medium‐sized enterprises (SMEs) access to the Financial Ombudsman Service. The near‐final rules were published in October this year, and the FCA expects to publish the final rules soon. Should you want to read the near‐final rules in full, you can do so here.

This article provides a summary of the key points of the release.

What is the Financial Ombudsman Service?

The Financial Ombudsman Service is an independent public body that aims to help resolve disputes between financial businesses and their customers. The service was set up by Parliament in 2000.

The service is free to use, and gives consumers access to powers and expertise that they would probably not otherwise have access to. More than two million people contacted the Ombudsman Service last year to get help with financial issues including:

• Bank accounts
• Credit cards
• Mortgages
• Debt repayment
• Pensions

When an issue is brought to the service, both sides of the story will be reviewed and attempts will be made to help the two parties settle the dispute. The service says it is generally able to settle disputes informally, although it does also have the power to resolve disputes formally. If you have an issue that you wish to discuss, it only takes a telephone call to do so.

Why is Access to the Financial Ombudsman Service Being Expanded to SMEs?

As it stands, most SMEs do not have access to the Financial Ombudsman Service. The only businesses that can currently use the Ombudsman are micro‐enterprises – those with fewer than ten employees or an annual turnover or balance sheet total of less than two million euros.

The rules are being changed because, according to the FCA, SMEs that don’t currently have access to the Ombudsman Service may find it difficult to resolve financial disputes due to a lack of financial management or legal resources.

Expanding the scope of the Ombudsman Service would enable more businesses to effectively resolve disputes with other parties. The FCA believes that this will result in SMEs being more likely to use firms they have not previously dealt with. This could help promote competition as businesses feel more confident engaging with other organisations, such as start‐ups.

Why Are the Rules “Near‐Final?”

The rules laid out in the recent document are “near‐final”. This means the FCA expects the changes in access to the Financial Ombudsman Service to go ahead. The FCA said they published the near‐final rules to give the service time to prepare before the new rules come into force.

What Kind of SMEs Will Gain Access to the Financial Ombudsman Service?

The key point of the new rules is that they will expand the services of the Financial Ombudsman to far more SMEs.

Under the new rules, SMEs will qualify for access to the Financial Ombudsman Service if they satisfy any one of the following requirements:

• Annual turnover of less than £6.5 million.
• Annual balance sheet of less than £5 million.
• Less than 50 employees.

These limits were set because the FCA believes SMEs that meet one of the above conditions are less likely to have access to financial management or legal services.

What Are the Limitations of the Financial Ombudsman Service?

Other than the requirements to be eligible for the Ombudsman Service, the biggest limitation is the amount of money that people using the service can claim. The current maximum award that can be handed out is £150,000 per case; this may not be enough in situations where the claimant has lost more money than this.

With this in mind, the FCA has also launched a consultation paper that aims to look into whether the maximum award the Ombudsman Service can hand out should increase from its current limit to £350,000. This would be a significant jump and it is hoped it would let more claimants receive the compensation they deserve. The FCA also says the higher limit would be more likely to meet the needs of SMEs.

When Are the New Rules Expected to Come into Force?

The near‐final rules were published in October 2018. All being well, the FCA says it should release the final rules before the end of the year and expects to introduce the new rules on 1 April 2019.

Additionally, the FCA has proposed that the rules regarding an increase in the maximum amount of compensation come into force on the same day.

The FCA will undertake a review to see how the new rules are working about 24 months after they are established.

Conclusion

The Financial Ombudsman Service is a valuable resource that currently helps people and micro‐enterprises with financial disputes. Should the new rules come into force as expected, they would significantly open up the scope of the service, giving far more SMEs access to its expertise.

Should the claim limits also be raised to the proposed amount, the Ombudsman Service would be able to award a significantly higher amount of money. This could be especially useful in cases involving SMEs. The new limits could also help those who already have access to the service.

The rules aren’t final yet but, all being well, they should be in place by the end of the year. We’ll be sure to keep you updated with any changes.