A new financial services court akin to the Employment Tribunal must be established to resolve disputes between small businesses and their lenders, and restore confidence in a discredited British banking system.
That is the conclusion of a new report prepared for the All Party Parliamentary Group on Fair Business Banking, launched at the House of Commons last night.
‘Fair Business Banking for All - how to improve access to justice for businesses in financial services disputes’, was prepared by the right-leaning thinktank the Centre for Policy Studies. It notes that over the past decade the relationship between banks and their small business customers has been severely damaged by a series of high-profile incidents. These have included scandals at RBS and Lloyds HBOS which affected thousands of SMEs.
Yet small businesses have fewer options for pursuing redress than individual consumers. Most commercial banking and lending is not regulated by and businesses do not have the same right of action that private individuals do to pursue damages for breaches of financial regulations under section 138D of the Financial Services and Markets Act (FSMA).
The existing Financial Ombudsman Service is also deemed inadequate because it excludes businesses with turnover exceeding €2m and over 10 staff. Compensation is also limited to £150,000.
The courts are the only formal dispute mechanism for most SMEs but these are costly and there is often a huge imbalance of power between parties.
The report recommends that: rights of action under section 138D of the FSMA should extended to SMEs; and a new Financial Services Tribunal established for the resolution of disputes.
The tribunal’s costs would be met by the Treasury and reimbursed through a small levy on financial services companies. It would have full legal powers to enforce disclosure of information and witness attendance, ’providing simple, low-cost access to justice’. The losing side would not pay the other’s costs, though it is envisaged that in complex cases qualified one-way costs shifting would apply to protect the complainant SME.
In a foreword to the report, former master of the rolls Lord Dyson ’unreservedly’ commended its recommendations. Despite cross-party support, however, a new tribunal may be years away if it happens at all.
The main obstacle is the perceived requirement for primary legislation, though this is disputed by some leading proponents of reform, including barrister Richard Samuel of 3 Hare Court. He believes the tribunal could be brought into being through the Tribunals, Courts and Enforcement Act 2007.
Speaking at the review’s launch, John Glen, economic secretary to the Treasury and City minister, said he had ’first-hand experience of the anger and frustration’ of SMEs in being unable to access justice. He said the report would be considered alongside ‘a range of options’, including those emerging from an ongoing review of alternative dispute resolution by UK Finance - formerly the British Bankers’ Association.