FCA must learn lessons from financial crash, say small firms

Mike Cherry of the FSB

The Federation of Small Businesses (FSB) is urging the Financial Conduct Authority (FCA) to provide more protection for small business owners who use personal assets as collateral for commercial loans.

Ahead of the deadline for submissions to the regulator’s consultation on the Financial Ombudsman (FOS), the business group’s response suggests that the FCA is not doing enough to tackle issues that arose during the financial crash.

Only the smallest firms can currently make a complaint to the FOS. The FCA is proposing to widen the definition of ‘eligible complainant’ to include those with a turnover of under £6.5 million and fewer than 50 employees.

FSB National Chairman Mike Cherry said: “There’s nothing in the FCA’s current proposals that would prevent another GRG-type scenario. Victims of past scandals will be disappointed to see that the FCA is not proposing Ombudsman access for them – business owners who’ve lost their firms don’t fall under its new definition of eligible complainant.

“You look at these recommendations and can’t help but feel that the FCA should be doing more to learn lessons from the crash.

“Too often, the regulator doesn’t recognise that small business owners have far more in common with consumers than big corporations.

“In instances where small business owners are asked to put personal assets on the line to secure a loan, it’s hard to understand why that’s not deemed consumer lending. If you’re effectively offering your house as collateral to access new finance, common sense dictates that’s consumer activity.

“During the crash, hundreds of small business owners had their lives destroyed because personal belongings were risked as part of commercial transactions.

“Recent media investigations have raised serious questions about the Ombudsman’s capacity to take on more complex cases. Any widening of its remit must be accompanied by significantly increased investment.

“We should also be focusing on prevention as well as redress. Business lending contracts need to become clearer and more uniform so firms can tell exactly what they’re taking on.

“It could well be that expanding the FOS turns out to be a short-term fix. Over the long-term, serious consideration needs to be given to a standalone tribunal for small firms. Many will still find themselves between a rock and a hard place: too big for the Ombudsman, too small to challenge financial giants.”