On Thursday a Backbench Business Debate was granted to debate the merits of introducing fair business banking practices. The motion I spoke in favour of read:
That this house notes the statements presented to the Treasury Select Committee on 20 July 2016 by Dr Andrew Bailey of the FCA; endorses his statement that the ad hoc creation of a compensation scheme within the FCA was not entirely successful and lacked perceived authority to treat customers with fair outcomes; believes that the recent headlines and allegations in the press against RBS will lead to pressure for a similar scheme; notes that many debates in this house over the years have focused on similar subjects with different lenders; believes that we must create not ad hoc compensation schemes, but a long term, effective and timely dispute resolution mechanism for both regulated and unregulated financial contracts; calls on the FCA, BEIS and the MoJ to work with the APPG on Fair Business Banking to create sustainable platform for commercial financial dispute resolution.
Although many financial firms may be regulated, business and commercial banking is an unregulated activity in the UK. Businesses therefore do not have the same level of protection as consumers do, nor do they have recourse to timely dispute resolution mechanisms. When problems arise between businesses and their bank or building society, the current dispute resolution options open to businesses are inadequate for effective, timely resolution. Some of the key failings include:
• Businesses must rely first on a lender’s internal complaints procedure.
• If that fails, some can go to the Financial Ombudsman Service. However, this is not well equipped to deal with complex financial disputes, and can only act in cases of microbusinesses up to a limit of £150k. The scope here is very limited, and any business with a turnover of more than 2m euros, more than 10 employees or whose debt has been sold on to an unregulated entity are excluded
• Businesses including SMEs are consequently left with no option except prohibitively expensive court procedures and, in the eyes of contract law, the business is deemed to have the same level of resource and knowledge as the counterparty, its lender. This is simply not a reflection of the financial reality.
• When large issues do occur, ad-hoc redress schemes cannot act as a sticking plaster. The scheme set up by the FCA for Interest Rate Hedging Product (IRHP) mis-selling did not have the perceived authority and impartiality, and should not be used as a model for redress moving forward. This was acknowledged by Andrew Bailey in his TSC hearing on 20 July and again on the 8 November.
• There is currently a similar scheme being designed by RBS for its GRG compensation. As it stands, the business owners that lost their business—and often their family homes—will receive absolutely no redress. The timing of this issue is therefore of paramount importance to constituents in the business community.
I also raised the Enterprise Finance Guarantee (EFG) scheme that RBS used in the late 2000s and how it effected one of my constituents – following his permission to raise his case.
It is important that the Govenrment acts now to bring about a thorough investigation into the state owned RBS. Viable businesses have faced closure because of these practices and compensation is needed to right these wrongs.