Financial services tribunals: Levelling the playing field for SMEs and banks

A proposal launched by MPs in parliament for a brand new tribunal should solve the problems that have beset both SMEs and banks involved in retail banking disputes.

The proposal is promoted by the All-Party Parliamentary Group on Fair Business Banking, chaired by Conservative MP Kevin Hollinrake.

At the launch in the House of Commons, John Glen, economic secretary to the Treasury and City minister, promised to consider the proposal on behalf of the government – as did representatives of the FCA.

The proposal’s genesis is the widely acknowledged “black hole” in the justice system for the resolution of medium sized claims by individuals, SMEs and even larger corporates, against banks. Difficulties that consumers have faced suing for the miss-selling of interest rate swaps have attracted considerable attention.

These are compounded where business have ended up in bank restructuring units, such as RBS’ Global Restructuring Group.

On one hand, traditional court litigation is too expensive and too risky for all but the biggest bank customers. As well as paying their own legal fees, they are on the hook for the bank’s legal fees if they lose their case. On the other, the FCA’s Financial Ombudsman Service has an upper limit for claims of £150,000, and is generally not seen as giving consumers their “day in court”.

The Financial Services Tribunal aims to fill this gap. It will be a specialist and inquisitorial tribunal, modelled on the employment tribunal for workplace claims.

A three person tribunal will be chaired by the lawyer, with two lay members, one from the SME community and one from the banking community. This will give the tribunal the insight and expertise necessary to resolve banking disputes fairly and efficiently.

Like employment tribunals, the rule that the loser pays the costs to the winner would be removed. This means that modestly resourced consumers can bring claims without the threat of having to pay a bank’s legal costs hanging over them.

What will happen next? The proposal has attracted broad support from MPs and careful attention from the Treasury and the FCA. It could be implemented in a number of ways. One option is to set up a new court-administered tribunal, within HM Courts and Tribunals Service.

However, that would most likely need legislation. Given the government’s packed parliamentary agenda, a quicker route to adoption may be for the FCA to implement the proposal via a bespoke arbitration scheme.

Both options are under consideration. There seems to be broad consensus within the SME community, in parliament and with the regulators that something needs to happen. Support for the idea also appears to be growing amongst the banking community.

The proposal ought to have considerable advantages for banks. In practical terms, it will give banks comfort that financial services claims will be funnelled to a specialist tribunal rather than scattered around the country’s various courts.

More holistically, trust in the UK’s banks has been eroded by the financial crisis of 2008 and its aftermath. Supporting this proposal is a way for the UK’s banks to improve their image and, ultimately, grow their business.

Whilst hopefully the most contentious banking practices such as the hard selling of interest rate swaps have ceased, the pace of change in the banking sector is likely to mean there are new issues to be resolved between banks and consumers. Cyber-crime is an increasingly prevalent problem, especially when coupled with fin-tech innovations.

This makes it as important as ever to have a fair and efficient tribunal to allocate rights and responsibilities between banks and their customers. The Financial Services Tribunal appears to be a front runner to provide this solution.

Ned Beale is a litigation partner at Trowers & Hamlins. 

Originally published July 27, 2018, Real Business 

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