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Ombudsman may be able to help more small companies

Small business advisers have expressed cautious support for a proposal to extend the remit of the Financial Ombudsman Service to allow it to help more companies to resolve disputes.

The City regulator is due to launch a consultation on boosting the service amid concerns that companies have nowhere to turn when they feel mistreated by a financial services provider.

The Financial Conduct Authority believes that a more extensive “standing scheme” is necessary to avoid ad hoc redress programmes being set up each time that a commercial lending scandal emerges.

Small companies have little protection at present, as commercial lending is unregulated and small business owners can rarely afford to turn to the courts. The Financial Ombudsman Service already offers an alternative as it can rule on disputes, make binding decisions on lenders and award up to £150,000 in compensation. However, it can look only into complaints from “micro” businesses — companies with fewer than ten staff and either annual sales of less than €2 million or a balance sheet worth less than that amount.

Andrew Bailey, the FCA’s chief executive, has expressed a preference for a new formal approach to help small companies, such as an independent tribunal process, but this would require legislation. Amid suggestions this is not a realistic prospect in the near future, the FCA is looking instead at extending the powers of the ombudsman.

The all-party parliamentary group on fair business said that an accessible, independent and transparent process to fillet out genuine claims and settle them fairly was “essential to restore confidence in UK banks lending to small and medium-sized companies”. However, Lord Cromwell, the group’s chairman, said that expanding the Financial Ombudsman Service without other reforms would represent the “easy way out . . . This is a good service, but not equipped or appropriate to tackle the sort of cases envisaged.”

Some are concerned that the organisation lacks the skills and experience to deal with more complex complaints. However, a spokeswoman said: “We’re a flexible organisation that’s used to managing a large caseload. In the last financial year we received 1.4 million enquiries and took on around 321,000 new complaints for a more detailed investigation. Just over 4,530 of those came from small businesses.”

Conrad Ford, founder of Funding Options, a business finance comparison site, said that many small businesses “still feel overlooked, sidelined, or poorly treated by the banks . . . Broadening the ombudsman’s remit is a very positive move.”

Mike Cherry, national chairman of the Federation of Small Businesses, welcomed the consultation. “Small businesses have a right to permanent protection. It’s the only way to restore their faith in the financial services sector and encourage them to seek finance for growth,” he said.