On 16 October 2018, the FCA published Policy Statement 18/21 on the access of Small and Medium-sized Enterprises (SMEs) to the Financial Ombudsman Service (FOS) (Policy Statement). The Policy Statement publishes rules that will extend the FOS eligibility scope, allowing larger SMEs, charities and trusts, as well as personal guarantors of loans to a business to access the service.

Background and objectives

FOS provides a quick, informal and independent process for resolving financial services disputes. The new rules seek to promote the FCA consumer protection objective, by making this service available to more SMEs who are currently likely to struggle to resolve disputes with firms as they may not have the necessary financial management and legal expertise. It is estimated that around 210,000 additional SMEs will be able to use FOS.

With a view to ensuring that complainants receive fair compensation, the FCA has also published Consultation Paper 18/31, proposing to increase the award limit that FOS can require firms to pay when it upholds a complaint, from £150,000 to £350,000. This consultation remains open until 21 December 2018.

Eligible complainants

Currently, only individuals and micro-enterprises may use FOS. A ‘micro-enterprise’ must have fewer than 10 employees and its turnover or annual balance sheet must not exceed €2 million.

The Policy Statement amends the scope of the Dispute Resolution: Complaints sourcebook (DISP) to also cover:

  • Larger SMEs: Under the newly-added ‘small business’ test, enterprises with annual turnover of less than £6.5 million, which either have fewer than 50 employees or their balance sheet total is less than £5 million, may access FOS. It is noted that following the consultation, the FCA has relaxed its position so that entities that meet the turnover test must only meet one of the other two tests.
  • Charities and trusts: This includes charities with annual income of less than £6.5 million as well as trustees of a trust with net asset value of less than £5 million.
  • Personal guarantors: Individuals that have given a guarantee or security in respect of an obligation or liability of a micro-enterprise or a small business, may also use FOS, to the extent that the complaint arises from matters relevant to the relationship with the respondent firm.

The FCA acknowledges that the financial services needs of newly-eligible SMEs may add complexity to the relevant disputes. Therefore, it will ensure that FOS has the necessary skills and expertise to handle the new complaints, by creating a ring-fenced, specialist unit, including investigators, lawyers and external experts with specific SME knowledge.

Transitional provisions and next steps

The Policy Statement contains the near-final rules. The FCA intends to adopt its final rules after taking into account the FOS draft business plan and budget for 2019-20 that will be considered by the Oversight Committee during November. The final rules will be adopted before the end of 2018.

The new rules will come into force on 1 April 2019. This will give FOS the necessary time to take any steps, including hiring specialist staff, to prepare for the changes.

As part of the post-implementation review, the FCA will also consider whether the micro-enterprise test should be amended to only cover payment services complaints and whether new rules are needed to prevent certain types of special purpose entities from accessing FOS.