RBS Scandal Brings U.K. FCA Review of Small Business Protections

  • Regulator looks at giving more businesses access to ombudsman
  • Review comes after RBS paid $556 million in redress to SMEs

The U.K. Financial Conduct Authority is looking at increasing the protections available to small and medium-sized businesses using financial services after Royal Bank of Scotland Group Plc was forced to pay 400 million pounds ($557 million) over its treatment of customers.

The FCA is considering allowing more firms to have access to the Financial Ombudsman Service if they have a dispute with a financial services firm, the regulator said in a consultation paper published Monday. Currently, all but the smallest firms are forced to take disputes to court. Under the proposal, 160,000 more companies would be able to refer complaints to the ombudsman.

The consultation comes more than two years after the FCA published a related discussion paper looking at how small and medium-size businesses using financial services were treated under the regulator’s rules. The November 2015 paper was issued in the wake of the RBS business lending scandal that has remained a much-debated topic between the bank, lawmakers and the FCA since it emerged more than four years ago.

Asked about the gap between the discussion and consultation papers, a spokeswoman for the FCA said it was “a complicated issue and we wanted to make sure we got it right.”

RBS faced further embarrassment on the issue last week when it published a number of documents that included one from a former junior manager advising colleagues: “Sometimes you need to let customers hang themselves."

RBS’s so-called Global Restructuring Group, or GRG, unit came under scrutiny in 2013 after a government consultant claimed the bank had deliberately pushed small companies that owed it money into difficulties to help bolster earnings. The bank agreed to pay 400 million pounds in 2016 to cover refunded fees to customers after a review of clients referred to the unit between 2008 and 2013.

"Some small businesses currently find it hard to achieve a fair outcome in disputes with financial services firms because court action is not a realistic option for them," said Andrew Bailey, the FCA’s Chief Executive Officer. "It is important for everyone, including financial services firms, that there is an effective dispute resolution mechanism for businesses."

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