The rumblings that went with the RBS Global Restructuring Group’s review by the Financial Conduct Authority (FCA) about the extension of regulatory oversight in the small business arena have appeared as a consultation paper from the FCA.
News arrived late last month that the FCA had launched a consultation on widening access to the Financial Ombudsman Service (FOS) for SMEs. This would extend potential redress to 160,000 additional SMEs, charities and trusts who could complain to the Ombudsman.
The FCA would change the eligibility criteria to access the Ombudsman, so businesses with fewer than 50 employees, annual turnover below £6.5m and an annual balance sheet (i.e. gross assets) below £5m would become eligible.
This is great for the relevant SMEs, but what could it mean for lessors?
Mainly, it is likely to raise costs. If the FOS receives over 25 ‘chargeable’ complaints about a business in a year, an administration fee of £550 applies for each successive complaint. In some cases, lenders may take to settling some complaints as it is cheaper to settle in advance than to run up a huge record of complaints with the FOS.
These fees would be on top of fees decided and levied by the FCA, with reference to the Financial Services Compensation Scheme run by the FOS. They are set and capped annually, but this could go up in future if the number of ‘covered’ SMEs rises.
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There is already some disquiet in the leasing industry about the way the FCA calculates its regulatory levies, which can show that these levies do not always seem fair.
A group of lessors, including One pm, Kennet Leasing, Tower Leasing and Henry Howard Finance, called for the regulator to calculate levies based on the interest charged by lessors rather than on cumulative rental payments. Additionally, lessors will have to spend more on their compliance and legal activities. More costs are the least welcome of the changes.
But in the fullness of time, and from the customer’s point of view, the fact that there is perceived protection on the part of the business could be used as a selling point by lessors. Widening redress could drive up standards; at least, this is what the regulator’s position is on the extension of the powers.
Some might ask how the FCA has the legitimacy to extend its own remit and powers without some sort of Parliamentary permission. “More material changes, such as changing the basis for the way the Ombudsman makes decisions to enable it to deal with significantly higher value disputes, would require legislation, which only the Government can introduce,” said the FCA.
There is a reading-between-the-lines moment here.
The FCA wants to avoid an expensive and time-consuming parliamentary review, where the option of a separate business finance regulator would not be off the table. And to add to that, the FCA is under public pressure.
The negative publicity over those people whose businesses went under after GRG worked with them has created a public perception of injustice that the FCA must be seen to be dealing with under its already-granted parliamentary authority.
And as ever, the Federation of Small Business (FSB) has said that the measures do not go far enough, and wants the maximum award value for the FOS raised above the £150,000 limit. The FSB also wants a tribunal to deal with those SMEs who are too big for the proposed measures but too poor for the costly courts process.
At the moment it is a case of the best of a bad situation with regards to business costs, but it could be a release of the tension when it comes to the public perceptions of SME business finance.