Too little help available to take on the big guns
The Times, 03.08.2017
By James Hurley
Smaller companies need protection after being mis-sold financial products.
When financial services firms give small businesses poor service or worse, companies struggle to obtain redress, experience poor outcomes more frequently than consumers and have limited recourse to the courts.
The view of an embittered entrepreneur, perhaps? In fact, this was the City regulator outlining the lack of options smaller companies have when they get a raw deal from their financial services provider.
These observations were made in 2015, as the Financial Conduct Authority invited businesses, the self-employed and their representatives to comment on whether small companies should benefit from greater protection.
The deadline for submissions closed almost 17 months ago, at which point the FCA was due to “consider whether to consult on changing our rules or take other action”.
Observers are still awaiting publication of a mere summary of responses, let alone proposals to improve protections. In April, the FCA promised to “share feedback shortly” but those who contributed say that they have been wondering if the work has been shelved, or simply stalled.
James Sherwin-Smith, former chief executive of Growth Street, has written to Andrew Bailey, the FCA’s chief executive, to complain.
“This delay suggests a total disregard for those that responded,” he said. “The lack of responsiveness exhibits an indifference on the part of the FCA to the plight of millions of small businesses who continue to operate without suitable supervision and regulation.”
The FCA published the discussion paper on whether there were inadequacies in the regulatory approach after “issues with the way in which some financial services firms have treated their clients”.
Since then, redress schemes have been set up for thousands of small companies affected by a restructuring scandal at Royal Bank of Scotland and scores more ruined by a banking fraud at HBOS.
At the heart of the issue is the feeling that many companies have that they have nowhere to turn after being taken advantage of.
The FCA often says that its hands are tied, since commercial lending is unregulated. The regulator said that small “companies must normally rely on the general law to obtain redress through the courts.”
Yet this is a route few can afford, and many lenders limit their liabilities through arcane contractual terms that most companies do “not have the bargaining power or expertise to negotiate”, as the FCA put it.
Last month, a closely watched case dealt a blow to companies’ hopes of using the courts to seek redress when they have a claim against a financial firm. In combined cases brought by three companies against RBS, Barclays and the RBS-owned Natwest related to mis-selling of interest rate swaps, the Court of Appeal ruled that banks did not owe small businesses a duty of care, even when selling them bafflingly complex financial products.
Sebastian Parsons, who owned a company that had been the sole UK distributor for Dr Hauschka skin products, said: “Sometimes it feels like small businesses exist solely for the consumption needs of banks.”
His company, Elysia, was mis-sold an interest rate swap by HSBC that he claims “ruined my business and disrupted my family’s life”.
“I’m disgusted at the [FCA’s] lack of progress,” he said. “I’m sure Brexit has caused things to be pushed to the sidelines but equally the banks want this issue to be kicked into the long grass.”
The FCA’s Andrew Bailey has expressed discomfort with the bespoke redress schemes set up for victims of interest rate swaps mis-selling and for those on the wrong end of RBS’s Global Restructuring Group. He has previously admitted there is a “missing piece in the landscape”, and expressed support for the creation of a permanent “alternative dispute resolution” service for small companies.
Another option is to extend the remit of the Financial Ombudsman Service (FOS), which can award payouts of up to £150,000 to companies with fewer than ten staff. The FCA has said that the regulator was committed to “addressing access to the FOS shortly using a formal consultation and feedback statement”.
The Federation of Small Businesses (FSB) wants small businesses to have similar protections to those of consumers and said that the FOS compensation limit should be increased. The FSB met the regulator last week to launch a consultation on “improved protections” for the smallest businesses”.
Businesses get greater clarity on loans
Lenders must be clearer about the cost of borrowing for small and medium-sized businesses after new rules came into force yesterday (James Hurley writes).
All providers of unsecured loans and overdrafts of up to £25,000 to small companies must now publish and “clearly display” the interest rate.
The reforms have been brought in by the Competition and Markets Authority. It said: “If anything, we think small businesses face greater problems than personal current account holders, not least the lack of transparency of information on offer. There are many reasons why [small companies] do not shop around and the lack of easy-to-find information contributes to this.”
Mike Cherry, national chairman of the Federation Of Small Businesses, said: “[They] have far more in common with consumers than with large corporations, and so deserve similar protections. Enforcing proper publication of loan rates will help the many small business owners that get stung by unexpected charges and hiked repayments every year.”