Review of rules extending SME access to the Financial Ombudsman Service

On October 24, 2023, the Financial Conduct Authority, FCA, published a feedback statement (FS23/5) to its call for input on the current thresholds applicable to small and medium size enterprises (SME) for referring complaints to the „Financial Ombudsman Service (FOS)“ that was launched by the Authority on March 17, 2023 (please see EventID 20315 in this context for more information). The statement now outlines the responses the FCA has received to its call for input, which was in form of a survey, and its way forward in this matter.
To recall, the FOS is available to SMEs since 2019 and is meant to be a chance for small firms with limited resources to resolve their disputes with other financial firms or customers via the FOS outside the UK legal system. The FCA sought feedback on the current definition of small firms for purposes of FOS reference and dispute resolution. The current definition considers the annual turnover of firms (max. £6.5 million) and the number of employees (less than 50) or the balance sheet total (max. £6.5 million).
Having reviewed the feedback from respondents, the FCA finds that the current thresholds still appear to be adequate to cover most disputes of small firms. Thus, the regulator will not make any changes to the definition of an SME. Furthermore, the FCA is of the opinion that the applicability of the FOS scheme for matters occurring after April 1, 2019 is also appropriate. In view of the upcoming close of the „Banking Business Resolution Service (BBRS)“ which is currently responsible for complaints of small firms too large for the FOS (the annual turnover, however, may not exceed £10million), the FCA notes that its rules are for complaints within the ombudsman service’s compulsory jurisdiction (CJ). That is, the FOS must deal with matters falling within the FCA defined SME scope. Additionally, however, the ombudsman service has a voluntary jurisdiction (VJ) that it manages. Firms can opt to be part of the VJ, which allows them to be „covered“ and have their complaints dealt with by the FOS, if they do not meet the SME definition of the FCA.
It shall be noted that many respondents raised concerns about various SME thresholds, namely those of the government, the Companies House, and the FCA. They all vary in terms of turnover, balance sheet totals, and number of employees (please see the comment box below). Also, respondents noted that the thresholds should be regularly adjusted for inflation which the FCA will pick up on to ensure that the impact of price increases will be reflected in the thresholds in the future.
—
The FCA also notes that it has received no evidence which would show that special purpose entities are exploiting the FOS system which is why it finds that no further rules are needed in this context. Furthermore, the FCA found no evidence that SME firms not qualifying for the FOS for dispute resolution may qualify as micro enterprises and thus would qualify for the FOS. Thus, there is no need to make any adjustments in this context.