Small and Medium Enterprises (‘SMEs’) are now able to complain to the Financial Ombudsman Service about financial services. The new rules came into force on 1 April 2019. At the same time, the upper limit of compensation which the Financial Ombudsman Service can award increased from £150,000 to £350,000.

The upper limit of £350,000 applies to complaints about acts or omissions by firms on or after 1 April 2019 and a slight increase up to £160,000 applies to acts or omissions by firms before 1 April 2019.

The extended jurisdiction of the Financial Ombudsman Service applies to businesses with an annual turnover of below £6.5m and fewer than 50 employees, or an annual balance sheet below £5m, bringing an expected 210,000 additional businesses into its scope.

These changes introduce a new dispute resolution forum for SMEs with disputes in the financial sector and could be an attractive alternative to the courts, given that the Financial Ombudsman Service is free for complainants and there is no risk of paying the other party’s costs.

Complaints against banks/lenders, insurance companies/brokers and financial advisers all typically fall within the scope of the Financial Ombudsman Service. The Financial Ombudsman Service was set up in 2001 as the independent expert in settling complaints between consumers and businesses providing financial services. It decides complaints by reference to regulatory and statutory duties and what is ‘fair’ rather than duties under the law. That can make it easier to establish a right to compensation at the Financial Ombudsman Service than in the courts.

Businesses considering using the service, however, would still benefit from obtaining early legal advice on the merits of their potential claim, the likely value of an award, and whether the Financial Ombudsman Service is the most appropriate forum for resolving the dispute. Disputes which fall within the jurisdiction of the Financial Ombudsman Service can be highly complex.

An expert understanding of financial disputes and the regulatory framework, together with the experience of effective presentation of evidence can all be determining factors in whether or not a complaint is upheld or a claim successful. For example, where a claim against a professional is based in the professional’s negligence - as opposed to a breach of a regulatory or statutory duty – it may be that the right forum is the courts, rather than Financial Ombudsman Service.

It should also be noted that once a Financial Ombudsman Service decision is accepted, the complainant is unable to bring a further complaint against the professional through the courts.

While a business may elect not to pursue a claim through the Financial Ombudsman Service or the courts; solicitors can still offer valuable advice at the outset on the most effective route for dispute resolution. Options also include mediation, early neutral evaluation and without prejudice discussions which can sometimes bring practical, as well as legal, solutions.

While legal costs can be a deterrent for SMEs, the vast and flexible range of funding options now available for good claims means that the costs risks of court proceedings can be managed and reduced with suitable funding and insurance products in place. Fixed fees might also be available for Financial Ombudsman Service claims in certain cases.

But it is vital to identify the most beneficial route for early and effective dispute resolution, and the Financial Ombudsman Service for higher value claims is a welcome addition to the range of options.

About the author

Susan Hopcraft Partner

Susan advises on all aspects dispute resolution particularly in the financial services sector. She has extensive insurance, professional negligence and restrictive covenants experience. She deals with claims against solicitors, valuers, surveyors, brokers and accountants, fraud issues, recoveries for lenders and bank mis-selling.