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Small businesses need more help with UK corporate bank accounts say experts

A review of banking complaint rules has found that the Financial Conduct Authority (FCA) must be given increased powers to help SMEs. Currently small and medium sized businesses have little recourse to fight the big banks over any grievances, and this should change, according to Simon Walker.

Mr Walker is the former head of the Institute of Directors and headed up the review of complaints against major banking institutions. While the review states that SMEs deserve more help from the FOS, it did not recommend a specific SME banking tribunal system. This is something that MPs and campaign groups have repeatedly called for.

Strengthening SMEs who challenge UK corporate bank accounts

Resisting the calls from campaigners, Mr Walker says that the review’s recommendations “would strengthen the infrastructure available to entrepreneurs wishing to challenge the behaviour of the banks”.

He also likened SMEs attempting to get recourse from banks under the current system as a “David and Goliath” battle. The review is now being considered by John Glen, the Treasury’s economic secretary. He told Parliament that the review “will allow me to reach a conclusion about what needs to happen.”

According to Mr Glen, the Government has already done a lot of work to help SMEs, but he accepts that more is needed.

Review proposes new measures for FOS

The review was commissioned by UK Finance, an industry group that was moved to take action after major banks like HBOS and the Royal Bank of Scotland were accused of exploiting SMEs before, during and after the financial crisis.

Proposals from the review include splitting the FOS into two bodies. One would be dedicated solely to complaints from consumers, and the other would deal solely with SMEs. The introduction of a new specialist advisory service should be introduced to advise the ombudsman on banking and legal matters, should the review’s recommendations be implemented.

Mr Walker’s recommendations add to the new regulations published by the FCA earlier in the year. These aim to extend its remit to include most small and medium sized companies.

Increased compensation under debate

The FCA has been consulting already regarding lifting the maximum compensation amount that can be awarded. It is currently £150,000 and the ombudsman is considering raising it to £300,000. Mr Walker recommends it is raised even further, to approximately £600,000.

Mr Walker’s review adds that a voluntary scheme could be introduced aimed at helping mid-sized businesses that aren’t included within the formal rules. He also suggests that larger companies could also be covered in the long term. Improved data systems are also proposed, which should act as an “early warnings system” against any future problems. This would be followed by a formal process of reconciliation to help business-owners affected by earlier banking scandals reach “closure”.

Pressure groups including the All-Party Parliamentary Group for Fair Business Banking have long been asking for a legal system similar to employment tribunals to specifically address business banking complaints. The Walker Review, however, argues that this would be more expensive, take too much time to implement and ultimately be less fair than the ombudsman system.

Some in the industry may find this surprising, following a Channel 4 report earlier this year that sparked concerns surrounding the competence of the FCA. Mr Walker says that the management of the ombudsman “need to revamp and get a grip on the organisation but that it cannot make sense to write [it] off”.

James Turner, Managing Director of Turner Little Limited says: “It’s encouraging to see the recommendations that the Walker Report has made. There is a definite need for more protection and help for small and medium sized businesses against problems with the banking giants.

“The financial crisis was an untenable situation for many and led to a feeling that SMEs have no recourse against any unfair actions from the banks. These are still recommendations only and are under consideration by the UK Finance trade group. They will work with business representatives, the Government, regulators and the banks themselves to decide how best to use the Walker Report to improve fairness for SMEs. It will be interesting to see which of Mr Walker’s recommendations are implemented.”

About Turner Little

Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

Turner Little and its affiliates do not provide tax, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.