Recent findings from the All-Party Parliamentary Group (APPG) on Fair Business Banking have highlighted the struggles that SMEs have encountered when seeking access to justice for victims of bank mis-selling.
The current civil justice and financial regulatory system has largely failed SMEs seeking compensation for banking errors; with business owners facing battles with banks in an attempt to receive fair compensation.
The current complaints system in place has many shortfalls, which are proving very costly and time consuming for SMEs seeking an impartial review enabling recovery of losses.
Many SMEs that have suffered due to bank mis-selling have also become insolvent or lost considerable financial strength as a result. Furthermore, due to the significant costs associated with litigation, it is prohibitively expensive for SMEs to challenge banks which subsequently presents a David and Goliath situation; whereby struggling SMEs are seeking damages against highly-resourced banking institutions, often making compensation or financial recovery efforts a pointless exercise.
Key Parliamentary Recommendations
Having reviewed the findings, the APPG report makes a number of strong recommendations to help SMEs receive access to justice, with the key suggestion being the introduction of an alternative justice process in the form of a new Financial Services Tribunal dedicated to supporting businesses wishing to raise a complaint regarding commercial lending practices.
The creation of a Financial Services Tribunal will not only focus on resolving banking disputes, but will do so in a less costly and more efficient manner for SMEs. This tribunal process would be legally binding on the parties whilst also ensuring that claims are acted upon quickly.
Existing financial services regulation of lending covers individuals and enables the Financial Conduct Authority (FCA) to take action against mis-selling to individuals. However, a significant failing within the current system is that commercial lending to businesses or limited liability partnerships is not similarly regulated.
This has been a major failing in the system restricting corporate victims’ ability to raise a claim or concerns. Amending the existing rules so that such lending falls within the same regulatory regime will ensure that SME owners obtain greater protections too.
To implement successfully, this would require a fundamental shift in the law, however, it would mean that the FCA could legally take enforcement action against unlawful commercial lending. This would provide SMEs with the capabilities to remedy the terms and conditions of highly-complicated lending contracts and seek amendments if subsequently found to be unfair.
More control of regulation in this area will also protect businesses from being pressured into agreeing to unfavourable lending criteria because they are limited in alternative options.
What can SMEs do?
Although changes to the current process may take some time, SMEs can show their support for the APPG’s recommendation by contacting their relevant lobby groups and local MPs. If SME business leaders come together to voice concerns over the system currently in place, it may encourage Parliamentary action.
A positive future, but what about the present?
Although going forward these suggested changes will have a positive outcome for businesses, it provides little reparation for business owners that have already been treated unfairly by the banks and, if the proposed alterations do take place, it is unlikely to open a new route to backdated claims.
Nevertheless, the proposed changes recognise the failings of the system and, going forward, SMEs will be much more likely to be supported in this area against any future bank mis-selling that they may suffer.
For more information about the Parliamentary findings and to understand the impact of bank mis-selling, contact Gavin Cunningham by phone on +44 (0)207 4651984 or via email at GCunningham@menzies.co.uk.