The Financial Conduct Authority (FCA) has today confirmed plans to extend access to the Financial Ombudsman Service to more SMEs.

Under the ‘near-final’ rules, around 210,000 additional UK SMEs will be eligible to complain to the ombudsman service.

The changes will mean that SMEs with an annual turnover below £6.5 million and fewer than 50 employees, or an annual balance sheet below £5 million, will now be able to refer unresolved complaints to the ombudsman service.

“SMEs should expect the final rules to come into force on 1 April 2019”

The FCA’s near-final rules mean that the ombudsman service can start taking practical steps towards putting the extension of its remit in place, including starting recruitment of additional staff with the skills and experience required. It intends to publish final rules later this year, following its normal scrutiny of the ombudsman service’s draft business plan and budget.

SMEs should expect the final rules to come into force on 1 April 2019.

Together with the near-final rules, the FCA has published a consultation on raising the maximum amount of compensation, the ombudsman service can require financial services firms to pay out from £150,000 to £350,000.

A lot of support

Respondents to the FCA’s January 2018 consultation strongly supported the extension of the ombudsman service to larger SMEs, charities and trusts, as well as a new category of personal guarantors.

The changes will allow a wider number of SMEs to access the service so that they can seek redress. The criteria for access to the service have been amended so that SMEs must only meet the turnover test and one of either the headcount or balance sheet total tests, not all three tests as previously proposed.

This change was made in response to feedback that applying all three tests would unfairly exclude certain types of SME, for example those with relatively low turnover but 50 or more employees.

Andrew Bailey, chief executive of the FCA said that it is vitally important for SMEs to have a mechanism to resolve disputes and is sure that the Financial Ombudsman Service is the right route for this.

‘The changes we are making are as far as we think we should go within our powers, but they will provide access to the ombudsman service for a significant number of smaller businesses. Before this their only option was potentially a costly legal one through the courts.

‘We will work closely with them to ensure that they are ready, so that SMEs are able to benefit from the new rules as soon as they come into force.’

What it means for small businesses

Ian Smith, CEO at 1pm plc, welcomes the Financial Ombudsman’s decision. ‘Reputable firms have nothing to fear from an extension in the powers of the Ombudsman, and deterrents to sharp practice from some lenders will help to create transparent competition and a greater sense of fairness in the marketplace.’

“Without sufficient skilled resource at the Ombudsman service, SMEs could see a delay in getting their complaint considered”

He does acknowledge that, as with any new initiative, there is of course an element of risk. ‘An extension to the Ombudsman’s scope will undoubtedly give rise to an increased level of complaints being referred to them. This could lead to an unintended consequence for consumers, sole traders and micro-businesses who simply cannot afford to pursue their complaint through the court system.’

These high increases could potentially cause problems.

‘Without sufficient skilled resource at the Ombudsman service, they could see a delay in getting their complaint considered. We’re sure that this is in hand and being carefully planned so that the previously high levels of service and protection that the Ombudsman has delivered will be maintained,’ says Smith.