The Financial Conduct Authority (FCA) is consulting on proposals to give more small and medium-sized enterprises (SMEs) access to the Financial Ombudsman Service (FOS) in a bid to improve SMEs’ access to routes outside of the court system to resolve disputes with UK financial services firms. But what do the FCA’s proposals mean in practice and do they go far enough?


The FCA proposes, in plans that were published yesterday (22 January) in Consultation Paper 18/3, that smaller SMEs will newly become eligible to take their complaints to the FOS. The FOS provides an independent dispute resolution service, free for eligible complainants, for resolving disputes concerning FCA-regulated and some unregulated activities. For these purposes, smaller SMEs are classified as businesses:

  • with fewer than 50 employees;
  • annual turnover below £6.5m; and
  • an annual balance sheet (i.e. gross assets) of less than £5m.

The FCA estimate that the changes would result in a further 160,000 or so of the approximately 200,000 SMEs who are not currently eligible being able to refer complaints to the FOS. In addition, under the proposals, personal guarantors of corporate loans made to these same smaller SMEs will be able to take complaints to the FOS.

The consultation is open for feedback until 22 April 2018. The FCA then plans to publish its policy statement in the summer . The FCA’s proposals, if adopted, will come into effect on 1 December 2018 and result in changes to the rules for complaints handling contained in the Dispute resolution: complaints (DISP) module of the FCA Handbook.


This consultation follows the FCA’s November 2015 Discussion Paper 15/7 entitled “Our approach to SMEs as users of financial services”. Feedback from this identified that smaller SMEs were restricted in their ability to resolve complaints and seek redress. The FCA’s proposals aim to address these concerns.

On this basis, the changes purposefully do not capture all SMEs, which are more broadly defined as businesses employing fewer than 250 staff or with an annual turnover of under €50m. The FCA distinguishes larger SMEs on the basis that they have the financial and other organisational resources, as well as a better understanding of financial services, to resolve their disputes with financial service firms through the courts. In addition, the courts will remain the port of call for all disputes over the FOS’s binding award limit of £150,000.


The FCA’s consultation asks for views on what more can be done in relation to SME disputes not covered by its proposed changes. Arguably the proposals do not go far enough at present and should permit more SMEs access to the FOS. On the flip side, the FCA estimate that their current proposed changes could already mean a further 1,500 disputes being referred to the FOS annually. This will inevitably mean an increase in the FOS’ operating costs and, more worrying, potentially add to the time taken to resolve FOS disputes.

However, the FCA’s hope is that their proposed changes will lead to firms altering the way they handle complaints from SMEs and their guarantors and the number of complaints will ultimately fall. This may be optimistic. However, there can be little doubt that if enacted, which they almost certainly will be in some form, these changes will alter the way financial service firms and SME’s handle their disputes.