The FCA is consulting on the protections available to SMEs. Currently only individual consumers and 5.5m micro-enterprises can access the Ombudsman if they have a dispute with a financial services firm.

Businesses that cannot access the Ombudsman need to take the firm to court but the FCA believes that many smaller businesses within this group struggle to do so in practice.

The watchdog is considering giving access to more SMEs by changing the eligibility criteria to access the Ombudsman, so businesses with fewer than 50 employees, an annual turnover below £6.5 million and an annual balance sheet (that is gross assets) below £5 million would become eligible.

Under the changes proposed by the FCA,160,000 additional SMEs, charities and trusts would be able to refer complaints to the Ombudsman.

The FCA said: “As long as a complainant is eligible, the Ombudsman can consider complaints about any regulated activity; it can also consider complaints about some unregulated activities, such as, lending to companies or the activities of business turnaround units.
Andrew Bailey, chief executive at the FCA, said:“It is important for everyone, including financial services firms, that there is an effective dispute resolution mechanism for businesses.

“Our evidence suggests some small businesses currently find it hard to achieve a fair outcome in disputes with financial services firms because court action is not a realistic option for them.  We have considered what could be done within our powers and the remit of the Financial Ombudsman Service to improve this situation and are proposing to expand access to the Ombudsman.”

The FCA also proposes to extend eligibility to personal guarantors of corporate loans, provided the borrowing business also meets the eligibility criteria.

Mike Cherry, federation of small businesses (FSB) national chairman, said: “It’s disappointing that the FCA’s paper is largely silent on the question of bringing more ‘unregulated activities’, including lending to small businesses, into the Ombudsman’s scope. We also need to question why disputes from business owners whose firms haven’t survived are not considered as part of this consultation.

He said: “There are many critical reforms needed that go beyond a simple change in the Ombudsman’s definition of ‘eligible complainant’. We’ll be shining a light on those as we respond to this paper in the coming weeks.

“The FCA estimates that around a fifth of small business disputes are above the current £150,000 Ombudsman award limit so it’s strange that increasing that limit does not form part of its proposals.  

“Alongside a much needed expansion of the FOS, we need to give serious consideration to legislating for a separate dispute mechanism. Under the FCA’s proposals, there will still be firms in an unhappy middle ground where they have a case that’s too big for the FOS but they don’t have the necessary resources to go through the courts. That’s where a tribunal could help. It’s also vital that the Ombudsman receives the funding it needs to successfully take on an increased remit.