Following the Treasury Committee’s critical report, the termination of the Business Banking Resolution Service leaves SMEs anticipating a new framework for addressing banking complaints and seeking justice.

On May 8, a House of Commons Treasury Committee chaired by Dame Harriett Baldwin released its report on SME Finance, identifying the opportunities and challenges facing small and medium-sized companies in the UK in the wake of the pandemic.

Among the various conclusions and recommendations that it contained, the report provided a particularly damning verdict on the role of the Business Banking Resolution Service (BBRS), which it found to be “ineffective” and “lacking in independence,” and that it should be terminated as planned. The BBRS is thus scheduled to close for new cases on December 13.

As eligible SMEs will still require a means by which they can seek redress for any complaints about the treatment they receive from the banks it is proposed that an alternative mechanism is put in place. The consultation on this is supposed to take place by the end of this year, if all goes to plan of course given the political timetabling.

Experts with ‘skin in the game’ concur with the Committee’s findings. Tina McKenzie, policy chair of the Federation of Small Businesses (FSB), says that the BBRS was “absolutely the right idea in theory, but in practice got caught up in problems that meant it has spent a lot of money not achieving its ambitions.”

Tom Reynolds, communications officer at UK Finance adds that “the number of larger SMEs registering for the services has been lower than estimated, despite regular, proactive marketing campaigns by the BBRS.”

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An important role

The BBRS was established in response to the commitments made by the banking and finance industry following an independent review of the complaints and alternative dispute resolution landscape in the UK’s SME market.

The review was chaired by Simon Walker, the former director-general of the Institute of Directors, and it comprised an independent panel with representation from the All-Party Parliamentary Group on Fair Business Banking.

The review focused particularly on disputes between SMEs and financial service providers. It published its findings in 2018, identifying the need for an independent service to resolve historic and current banking business complaints for eligible SMEs that had not previously had access to an independent review.

In response, the BBRS was launched in February 2021 as an independent resolution service for SMEs that are considered too large to be eligible for the Financial Ombudsman Service (FOS), or not sufficiently sophisticated to be able to go through litigation.

Some 99% of SMEs are eligible for the FOS, so the BBRS is evidently fulfilling a niche role to serve those SMEs that are neither small, nor large corporations, and are not covered by any other suitable complaints procedure. It is estimated there are 55,000 SMEs in total that are in this position.

At its inception, according to the Treasury Committee, it was estimated that the potential caseload could be thousands, bearing in mind the prevalence of historical, new and prospective cases. However, only 1,000 cases had been registered from 2021 until the time of the review, with only 146 eligible for the scheme, and just 113 receiving financial awards or settlements.

The Committee’s report describes the BBRS as a “failure,” noting specifically two major complaints. The first alludes to its questionable independence, which seems understandable given that the participating banks in the scheme effectively control the service.

The BBRS is entirely funded by its seven participating banks; these are Barclays Bank, Danske Bank, HSBC UK, Lloyds Banking Group, NatWest Group, Santander UK and Virgin Money, alleviating the taxpayer of the burden.

The SME campaigning group, SME Alliance, notes that the BBRS is controlled by a Bank Appointed Member Limited Company sitting on its board, and moreover that it has failed to heed the advice of an SME Liaison panel. This was later disbanded in March 2023 after its chair Antony Townsend resigned in acrimony, “protesting the lack of progress helping small firms access the outcomes they were entitled to,” says McKenzie. After he resigned, the BBRS then quickly disbanded the entire panel.

BBRS: Our set-up and governance

Second, the eligibility criteria for cases to be considered are considered to be too narrow, and it is further alleged that the BBRS has proven unwilling to address this.

To be clear, the remit of the BBRS means that it can only deal with cases against any of those seven participating banks, not any of the myriad other finance providers. The timeframe to launch a case is limited too, and there are other restrictions on excluded schemes, as well as any prior settlements, or judicial proceedings, either historically undertaken, or progressing.

Damning verdict

All told, the BBRS has delivered approximately £2 million worth of settlements, at very questionable value in light of its operational cost, which has been calculated to be around £40 million. This comprises the initial set-up cost of £23 million and ongoing running costs that amount to almost £10 million a year, although to reiterate none of this was public money. These high costs, coupled with low demand for the service clearly made it unviable.

Given all of this, the BBRS was scheduled for closure in 2023. However, in November a temporary extension was announced to enable it to operate beyond the agreed deadline. This mainly reflected concerns that the pool of SMEs that are considered too large for the FOS coverage would then be left without an appropriate dispute settlement process.

The agreement to extend its tenure occurred just after the Financial Conduct Authority published the results of a review of its rules relating to SMEs and access to the FOS (in October). That review concluded there would be no need to extend FOS access to larger SMEs. Presently a business can appeal to the FOS if it has an annual turnover of less than £6.5 million, employs fewer than 50 people, or has a balance sheet total of less than £5 million.

Firm response

In its original submission to the Treasury Committee (issued in August 2023), the BBRS defended itself robustly, arguing that it has been able to help many SMEs “receive a comprehensive and independent resolution to their complaints.” It noted the findings of an independent post-implementation review stating that it was doing exactly what it was set up to do, with no evidence to question the competence or capabilities of its staff.

It also indicated that as the BBRS is not always party to the final sums agreed, the amount awarded to customers is likely to be substantially higher than that reported.

The BBRS declined to comment any further, but referred to its published response to the Treasury Committee’s report to explain its position. In that, it mentions the very small market that it was set up to serve and that it has done everything in its capacity to appeal to this particular segment to come forward with any banking complaints.

The BBRS goes on to strongly refute the assertion made in the Committee’s report that it is a failure, stating that, “the BBRS has been entirely successful in delivering the service it was set up to deliver, and adding that “it is not a mark of failure for the BBRS that there were less customers than the SME bodies and banks who set up the service anticipated.”

In its original submission, the BBRS highlights that suspicions of widespread criminality and regulatory breaches in the SME lending market were unfounded. The Walker Review found that to be the case and was further supported by the BBRS data, adding also that many cases in any event had access to an independent review.

Review into the complaints and alternative dispute resolution (ADR) landscape for the UK’s SME market

The BBRS pointed out that while there were many cases of personal hardship among SMEs, which it sympathised with, this was not the result of systemic problems within the criteria and scheme rules set up by which the BBRS operates.

The BBRS also strongly refutes the assertion that it has been uninterested, or unwilling to make changes to widen its eligibility criteria, stating that it resolves cases purely based on the principles that were established at the outset. It points out that it has no powers to change those rules, which were agreed jointly by the banks, SMEs and business groups.

The BBRS then argues that the low case volume identified can be explained by “optimism bias from self-interested parties,” coupled with a lack of scrutiny of the data at the set-up stage. It says the estimated case volume became inflated without any clear explanation.

Whereas some 6,000-9,000 cases were assumed to exist after successive meetings of the Implementation Steering Group, data from the banks and consultants pointed to 110 cases per year plus 2,100 historical cases. An independent review by Bayes Business School calculated a total of 1,648 potential cases, of which only a small percentage of complaints would proceed. The only conclusion that can be made is that the BBRS was set up to provide a service for volumes that never really existed.

It also rejects a comment made in the Daily Telegraph by the Treasury Committee’s Chair that the BBRS is not trusted. To refute this, the BBRS quotes a survey by Opinium of more than 240 business owners, in which 91% viewed the BBRS as essential or useful.

It goes on to mention its own customer satisfaction survey, showing high ratings for its service: 70% of those surveyed stated they received a resolution to their complaint because of help from the BBRS, which they would not have otherwise; 85% agreed, or strongly agreed the application was simple to complete, based on those who raised their complaint after the BBRS launched; and 82% felt they had received substantial help from their case registration support officer.

Next steps

The BBRS felt that it could not comment on what comes next. That will be decided upon after the consultation process is completed, which may be affected by the upcoming general election and prospective change of government.

Reading the runes it would seem as if the successor scheme will either be handled by the FOS, or modelled to a degree on what went before. However, this will need to be independent of the participating banks, and with the new scheme’s remit widened to cater for other lenders. The total cost will be lower too, but at the inevitable risk of transferring this burden from the banks to the taxpayer.

It could be concluded that all of this was just a storm in a teacup. As Reynolds of UK Finance points out, only around 1% of SMEs are affected. The other 99% can already make complaints to the FOS. He adds that lenders also “take complaints very seriously and adopt a customer-centric approach to dispute resolution to achieve good outcomes, in line with customer duty obligations.”

However, it also raises an issue that McKenzie is clear on – there is a “big justice gap” for small firms. She says the next government must take steps to ensure there are fair and accessible ways for small firms to have their complaints judged on their merits. Extending the remit of the FOS would be the most appropriate way to do this, and it would need to recruit more staff and improve its training to enhance its level of expertise.

“A financial tribunal system should also be established for larger, more complex cases,” she says, adding that this would provide a more affordable and less risky option for small businesses unable, or unwilling to “take on the risk, stress and costs of engaging with the courts.” This, she says, would be also beneficial for the banks, as tribunal decisions create binding precedents that remove uncertainty and reduce costs for all in the long term.

This would provide SMEs with the confidence to seek finance to grow their businesses and invest in energy-efficiency and productivity-enhancing measures, and it would enhance the UK’s reputation as a place to do business.

There are solutions clearly on offer to support all SMEs. It is now up to the incoming government to put in place a credible successor regime.

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