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New FCA regulations could affect your SME

2018 02 13

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The Financial Conduct Authority announced on 22nd January 2018 that they are altering the eligibility of complainants for those who currently operate SMEs. The new regulations could allow SMEs, charities and micro-enterprises alternative routes to dispute financial claims against financial service firms.

Currently, very few cases are being resolved through the courts for SMEs in regards to financial disputes. Therefore, the FCA are proposing that SMEs have access to the Financial Ombudsman as a resolution route. Within this alteration of accessibility, they are also proposing that the current FOS maximum claim value of £150,000 be increased to £600,000, although this can only be confirmed by the Government.

What do the new regulations entail for SMEs?

By definition, SMEs are businesses that have under 250 employees and their annual turnover is under £50million. Currently, ‘The Dispute Resolution’ (DISP) stipulates that eligible complaints can only be made from consumers and/or micro-enterprises, meaning they must have 10 employees or fewer and the balance sheet should not exceed a turnover of £2million. This obviously causes some SMEs to be in a grey area.

The new DISP definition will now extend to businesses which are too large to be a micro-enterprise but have a turnover of £6.5million or less, a balance sheet of no more than £5million and fewer than 50 employees. All three aspects of this new definition need to be adhered to in order to be compliant and considered a ‘small business’.

The FCA have also proposed that guarantors to a business may also be eligible to take their dispute to the Ombudsman, providing that the borrowing business is also compliant as stated above.

Who is not covered in the FCA’s new proposed policy?

SMEs may not be covered in particular circumstances as they will be considered ineligible to be referred to the Ombudsman. For instance, if the complainant’s dispute pay-out exceeds the Financial Ombudsman Service’s maximum pay-out of £150,000 then they will not be considered eligible. You will also be considered ineligible if the company is being, or has been, dissolved or if the SME exceeds the eligibility requirements.

Why has this been introduced?

The FCA have investigated and found that small businesses are not necessarily getting a fair chance to dispute claims, due to the only viable option being a court date. This can be extremely costly and thus, could cause fatal damage to the business, especially as there is no guarantee that the court will rule in favour of the small business.

This means that some SMEs have had to swallow the costs of inaccurate charges, potentially provided by a financial services firm, due to the uncertainty of outcome. Therefore, the Chief Executive of the FCA is proposing more accessibility to the Ombudsman in an attempt to alleviate this issue.

When will the FCA’s recommendations take effect?

The FCA are currently investigating and asking SMEs to partake in a consultation, which would provide them with an overview of the business and any previous financial disputes. The deadline for this is 22nd April 2018. This will inform the Policy Statement which is set to be published in the summer of 2018 by the FCA.

It is estimated it will thus take effect from 1st December 2018 and complaints can therefore be made following this new policy from that point onwards.

What should we do as SMEs to prepare?

The consultation is set to run for 12 weeks so in order to make a difference in this policy making, you must send your comments by 22nd April 2018. You can do this by:

Using any of the above options means that you will be able to have a say on how you think this policy should be made.

As complaints will likely become more complex due to new founded eligibility, financial services firms will also need to familiarise themselves with the new policy. As a SME you should ensure that you are not relying on a financial services firm to update you. It would be worth considering employee training on the new Policy when it is released in summer 2018 so that all members of your enterprise are fully aware of where you stand as a SME, in the case of a financial dispute.

Check out our blog for more information, MP Insurance for all your business insurance solutions.

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