FCA confirms greater access for SMEs to the Financial Ombudsman Service

The changes will mean that SMEs with an annual turnover below £6.5m and fewer than 50 employees, or an annual balance sheet below £5m will now be able to refer unresolved complaints to the ombudsman service. Under the ‘near-final’ rules published today around 210,000 additional UK SMEs will be eligible to complain to the ombudsman service. 

Respondents to the FCA’s January 2018 consultation strongly supported the extension of the ombudsman service to larger SMEs, charities and trusts, and a new category of personal guarantors. The changes will allow a wider number of SMEs to access the service, so they can seek redress. The criteria for access to the service have been amended so that SMEs must only meet the turnover test and one of either the headcount or balance sheet total tests, not all 3 tests as previously proposed. The FCA made this change in response to feedback that applying all 3 tests would unfairly exclude certain types of SME, for example those with relatively low turnover but 50 or more employees.

Andrew Bailey, Chief Executive of the FCA said:

“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. The changes we are making are as far as we think we should go within our powers, but they will provide access to the ombudsman service for a significant number of smaller businesses. Before this their only option was potentially a costly legal one through the courts.

“The changes are an important extension of the ombudsman service’s role and remit. We will work closely with them to ensure that they are ready, so that SMEs are able to benefit from the new rules as soon as they come into force.”

The FCA has published near-final rules, so the ombudsman service can start taking practical steps towards putting the extension of its remit in place, including starting recruitment of additional staff with the skills and experience required. The FCA intends to publish final rules later this year, following its normal scrutiny of the ombudsman service’s draft business plan and budget. We expect the final rules on the SME extension to come into force on 1 April 2019.

Together with the near-final rules, the FCA has published a consultation on raising the maximum amount of compensation the ombudsman service can require financial services firms to pay out from £150,000 to £350,000.

Notes to editors

1. PS18/21: SME access to the Financial Ombudsman Service - near-final rules[1]
2. CP18/31: Increasing the award limit for the Financial Ombudsman Service[2]
3. The FCA’s Discussion Paper 15/7: Our approach to SMEs as users of financial services[3]
4. In April 2017, the FCA launched a consultation on its future mission. We have published a summary of the responses we received in this feedback document[4] which committed to publishing a formal consultation and feedback statement on SMEs’ access to redress.
5. Currently businesses with 10 or more employees and annual turnover or annual balance sheet (i.e. gross assets) above €2m, cannot refer complaints to the ombudsman service. Charities with income over £1m and trusts with net assets above £1m are also ineligible.
6. The FCA estimates that only 30,000 SMEs will not be eligible.
7. Alongside small businesses, we are making charities with income up to £6.5m and trusts with net assets up to £5m eligible to refer complaints to the ombudsman service. We are extending eligibility to making individuals who act as personal guarantors for loans to businesses they are involved in.
8. The FCA intends to complete this review by January 2021.
9. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
10. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this, it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
11. Find out more information about the FCA[5].