FINANCIAL SERVICES REGULATION
Ombudsman review paves way for FCA protection for
small firms
Giving small firms access to the Financial Ombudsman has been in the talks for almost a year, and the arbitrating organisation is now preparing on that assumption.
When earlier this year, an undercover report from Channel 4’s Dispatches programme documented instances of complaints mishandling at the Financial Ombudsman Service (FOS), it did not just raise eyebrows in the consumer space.
The FOS had been the main candidate for a dispute resolution body that would handle smaller businesses’ grievances against financial services providers. But the Dispatches report revealed ombudsmen already had their hands full, especially with a huge inflow of PPI complaints over the past few years. Could they really undertake supervision of a whole new sector they had no experience in?
Chief ombudsman Caroline Wayman is adamant they can. Replying to the findings of an internal FOS review, led by former Which? director Richard Lloyd, she told MPs on the Treasury Committee: “We will be ready if people choose to give us the expanded jurisdiction. I think that it is important to say that we do recognise the need to think about this differently to other areas of casework.
“We are preparing on the basis that the extension does happen … We are looking at the skills and capabilities that we will need, and indeed the processes that we will need.”
Lloyd, the reviewer, also deemed feasible for the FOS to undertake SME complainants as long as it clearly identified the resources and skillsets it needed to implement ahead of time. Nevertheless, he also look at the FOS’s role in the regulatory system from a different angle.
“I think that it is important to say that we do recognise the need to think about [SMEs] differently to other areas of casework”
“I think what has been missing in the debate about the FOS is that there is a bigger, in my view more effective, way of tackling these kinds of systemic or widespread consumer harms earlier,” he said.
“That is for the FCA to use [its] power better to force the firm to put things right in the first place, proactively contacting its customers, saying, ‘This is what we are going to do to put it right’ [rather] than to wait for the individual complaints to work through the system and potentially to end up at the FOS.”
Lloyd’s view – that FCA-mandated redress schemes should supersede over the individual complaint route in cases of widespread misselling – stems from the PPI experience, which he said “completely distorted the [FOS] for a decade”. But it is easy to see his advice being followed for the small business sector as well: the case around RBS’s poor treatment of SME customers in its GRG turnaround unit between 2008 and 2013 – the “original sin” that prompted calls for better SME protection – is in many respects similar to the PPI controversy, and would have equally fitted the bill for an FCA-mandated redress scheme.
“What has been missing in the debate about the FOS is that there is a bigger, in my view more effective, way of tackling these kinds of systemic or widespread consumer harms earlier.”
In 2016, RBS set up a third-party-led complaints scheme for former clients of GRG. That scheme only received 1,300 complaints out of 16,000 eligible customers, of which around 800 were resolved and 300 upheld.
The scheme is set to close in October – a decision that drew fire from multiple parties.
According to Wayman, the discussions with the FCA do not involve raising the maximum awardable amount at this point, which stands at £150,000. But commercial lenders can be fairly certain a large number of their customers will get access to an official dispute adjudicator – and there is no turning back.
