After an extensive series of evidence hearings at Westminster, with witnesses ranging from the Chief Financial Officers of Clydesdale and HSBC, to HM Treasury, British Chamber of Commerce, crowdfunders, pressure groups such as SME Alliance, the Chief Secretary to the Treasury, academics and lawyers, a Report on SME Finance was published by the Treasury Select Committee on 26th October 2018, evaluating what needs to be done to address deficiencies, imbalances, misconduct and regulation in the SME finance market.
The Report concludes that although providing more small businesses with access to the Financial Ombudsman Service is a sensible step, above and beyond this there is now a clear need for a financial tribunal system: “The Treasury and the FCA should introduce a regulatory regime that protects SMEs. The scope of the regime must be based on an appreciation of the varying levels of financial sophistication within the SME community…The Committee recognises that bringing commercial lending within the regulatory perimeter will not be a ‘silver bullet’. But doing so would afford the FCA a significant amount of discretion as to how to design and implement a regulatory regime”.
MBM Commercial’s Cat MacLean appeared before the Treasury Select Committee in May 2018 as an expert witness, providing evidence in particular on the case for establishing a new “tribunal” body for settling SME banking disputes and the means by which such a body could be created, as well as the issues faced by SMEs that are seeking to resolve disputes with their bank. Her evidence spanned issues such as the lack of regulatory protection for SMEs, misconduct in SME banking, redress for SMEs, the Financial Ombudsman Service, barriers to justice for SMEs, and the need to drive cultural change within banks.
Cat MacLean heads up MBM’s Dispute Resolution Team, and has been litigating against large financial institutions since 2008. She is a Panel Member of The Independent Monitoring Panel of the Chartered Bankers Professional Standards Board, a member of the Lord President’s Consultative Committee on Commercial Actions in the Court of Session, is a member of the APPG on Fair Business Banking’s Professional Advisory Panel, and a Committee Member of the House of Commons Parliamentary Inquiry into Financial Disputes. She is also a Writer to the Signet (WS) and has been appointed to the Council of the WS Society.
Small and medium-sized enterprises (SMEs) form a hugely important part of the UK economy, accounting for 99.9 per cent of all private sector businesses and 60 per cent of all private sector employment. The effective provision of finance to the UK’s SMEs is therefore crucial for boosting the country’s economic performance. Yet the dark clouds of past misconduct still hang heavy over the SME finance market, undoubtedly affecting SMEs’ trust in the financial institutions that serve them. Restoring that trust will enable the UK’s SME sector to act as an even greater growth engine for our economy.
At the end of October 2018 the Treasury Committee have issued the SME Finance Report which, in part, scrutinises the events that contributed to the erosion of trust in lenders and follows the Committee’s specific investigations into events at RBS’s Global Restructuring Group (GRG). The report contains a number of recommendations that seek to address the deficiencies in the SME finance market that have been laid bare in recent years.
The conclusions of the report make many key recommendations, such as assisting SMEs in building awareness and understanding of the financing options available to them. It recognises the reluctance of SMEs to apply for finance by improving levels of awareness and understanding of financing options. Overall, the Committee formed the view that alongside improving the Financial Ombudsman Service, there remains a clear need for a financial tribunal system – something for which many have been lobbying. The Committee concluded that “Expanding the remit of the Financial Ombudsman Service, as proposed by… the FCA.. will still leave a gap in the market for dispute resolution. Larger, more complex SME disputes will be either ineligible or unsuitable for the Ombudsman, yet those bringing these disputes may lack the resources required for litigation. The Committee believes that a Financial Services Tribunal is required to handle these disputes”.
On the Financial Ombudsman Service, Cat MacLean commented:
“The point I would like to make about the Financial Ombudsman Service is that it may work well for consumer issues where the issue is straightforward—where an individual has been charged for going over their overdraft limit and, as a matter of fact, they didn’t. However, the kinds of claims that my clients have made before they come to me or that we make on their behalf—it is a mixture—seem just to be beyond the capability of those who deal with them at FOS. There seems to be a real difficulty understanding any of the complexities. I just do not feel that FOS is fit for purpose for the kinds of disputes we are talking about.”
She went on to tell the Committee that, by comparison, “tribunals offer “a simplified process and procedure [that] is much more fast-track” than the High Court”. Endorsing these comments, the Committee recommended the establishment of a Financial Services Tribunal to handle these disputes, commenting that such a body would usefully complement the expansion to the FOS’s remit proposed by the FCA. This is a step towards ensuring that the UK’s small businesses will no longer be denied justice, as so many have been in the past.
On the current system for securing financial redress available to SMEs, drawing on her 10 years of experience at MBM litigating on behalf of SMEs against financial institutions, Cat commented that:
“The imbalance in resources between a large bank and a small business] is absolutely huge and very often insuperable … if you have somebody who is essentially an individual—in business, but a very small SME—it is almost impossible [to litigate against a bank]. People who are embarking on trying to advance a claim against a bank need to understand that they have to be absolutely prepared, financially and emotionally, to take this right to the door of the court, and I mean literally the door of the court. It is not that financial institutions will never settle and never resolve, but generally speaking they like to try to play it out for as long as possible, in the hope that those individuals will give up—perhaps because they have run out of money and also because litigating for years and years is extraordinarily punishing.”
Cat was also asked about the issue of cultural change within a bank. Andrew Green QC, who was also giving evidence alongside Cat, had suggested that if the regulator imposing fines to the tune of hundreds of millions of pounds had not changed the culture within a bank, the idea that a financial services tribunal will do so “seems to me to be a little unrealistic”. Cat countered this, arguing:
“I … think that if a bank is fined, it does not really have an impact on the individuals within that bank who are carrying out the day-to-day banking work … The kind of threat that a tribunal system and the laying of evidence will have will really help to drive the cultural change that banks need.”
The committee agreed with Cat, commenting that introducing a Financial Services Tribunal “will ensure that the UK’s small businesses will no longer be denied justice, as so many have been in the past. We must introduce a system for dispute resolution and redress that gives the UK’s SMEs the confidence to engage with financial services providers, safe in the knowledge that they are not vulnerable to exploitation and mistreatment.”
Cat said afterwards that the process of appearing before the Treasury select Committee, whilst terrifying, was a career highlight; it had been really encouraging to see the issues which she and her team grapple with on a daily and weekly basis when representing clients locked in dispute with their bank, taken so seriously by the Committee and explored in such careful detail. Cat concluded of her experience:
“We feel that at last our voices, and those of our clients, are being heard, and it is fantastic to feel that, in continuing to fight for a fairer redress process for our clients, we are really making a difference”.
For further conclusions and recommendations issued by The Treasury Committee, the report is available to read in full here: https://publications.parliament.uk/pa/cm201719/cmselect/cmtreasy/805/80503.htm#_idTextAnchor000