October 24, 2017 / 4:30 PM / 10 months ago

LPC-FCA to extend Ombudsman service to UK middle market firms

Oct 24 (Reuters) - The Financial Conduct Authority (FCA) is considering widening the Ombudsman service to small and medium-sized UK companies (SME) in its interim report that highlights the mistreatment of customers by Royal Bank of Scotland’s Global Restructuring Group (GRG).

The Financial Ombudsman Service is a statutory body that handles disputes between companies that provide financial services and their customers. It can hand out fines of up to £150,000.

The service is restricted to companies with a maximum turnover of £2m that employ less than 10 people, which made it inaccessible to bigger companies that claimed to have been badly treated by RBS at the height of the financial crisis.

GRG was the division at RBS that was responsible for turning around companies that were showing signs of financial distress. It was closed down in 2014 amid mounting controversy.

The FCA’s interim report, which was published on October 23, looked at 207 cases of businesses that were transferred to GRG.

According to the report, 86% were on the receiving end of “inappropriate treatment” by RBS and 16% of the sample, which were viable businesses, became increasingly distressed as a result of GRG’s intervention.

The businesses had debt ranging from £250,000 to £20m and “did not receive the support they could have reasonably expected in a period of extreme financial stress”, the report said.

This has encouraged the FCA to consider broadening access to the Ombudsman.

“The Ombudsman is available as a dispute resolution option for some smaller businesses, and we are seeking to broaden its scope to provide more SME customers with access to it,” FCA chief executive Andrew Bailey said in the report.

The FCA held a consultation in 2015 that considered whether expanding access would give SMEs more confidence. Implementing a wider service would require legislative approval by Parliament.

“We’re aware that our role could be widened, but that’s ultimately a decision for the FCA. However we’re a flexible organization that’s used to managing a large caseload.” a spokesperson for the Ombudsman said.

An initial report in 2013 by Dr Lawrence Tomlinson concluded that RBS engineered defaults of SMEs in order to funnel them into its more profitable GRG division.

The FCA’s interim report rejected some of these claims, but said that RBS failed to comply with its own standards of communication to businesses transferred to the GRG and failed to support SME businesses “in a manner consistent with good turnaround practice”.

RBS has introduced an official complaints procedure for SME customers, which is overseen by retired high court judge Sir William Blackburne, as well as a refund mechanism for charges relating to monitoring fees, late information and asset sales. (Editing by Tessa Walsh)

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