Steps taken towards a Business Banking Resolution Service (BBRS) for SMEs but will it work?

In October 2018, the UK Finance-commissioned Walker Review of the redress landscape for SMEs was published. Amongst the recommendations for the settlement of both past and future disputes was the mooted introduction of a voluntary ombudsman scheme and dispute resolution service (DRS). It is now understood that leading banks have largely agreed to adopt the proposals outlined in the Walker Report and steps are being taken to establish a new Business Banking Resolution Service (BBRS) by the end of 2019 as an alternative redress scheme for businesses that have been victim to banking misconduct.

It is clear that the current avenues for redress (litigation, regulatory review schemes and the Financial Ombudsman Service) are not working for SMEs; if justice is to be delivered and standards of banking conduct to be corrected and then maintained at fair levels in the future, a new avenue for redress needs to be created.

Why is a Business Banking Resolution Service (BBRS) needed?

LEXLAW have made submissions to the Treasury Select Committee’s SME Finance Enquiry in June 2018 outlining the current disadvantages of SMEs utilising the current means of redress.

The ineffectiveness of the court system for SMEs

LEXLAW have consistently highlighted the tactics used by banks to undermine SMEs access to justice in the courts.

Major banks have been criticised for their failure to provide full and frank disclosure when defending claims of wrongdoing against them. Disclosure is a fundamental part of litigation whereby each party are required to produce all relevant documents regardless of whether they assist or harm their case. In January 2018, Kate Green MP praised LEXLAW’s work in highlighting cases of RBS’s non-disclosure. In Mehnaaz Chaudhry & Another v. The Royal Bank of Scotland PLC (High Court of Justice, Chancery Division, Claim No: HC-2013-000489), Dentons advanced the meritless argument that documents generated by the IRHP review scheme were non-disclosable. RBS were forced to redo their standard disclosure exercise and hand over the documents. 

Moreover, in The Royal Bank of Scotland Plc v. Highland Financial Partners LP [2013] EWCA Civ 328, the Court of Appeal found a deliberate and dishonest failure by RBS to disclose relevant documents and misled their client, their own lawyers and the court. In addition, the Court of Session in Royal Bank of Scotland Plc v Carlyle [2010] ScotCS CSOH 3 found the bank lacked “candour” in its deliberate failure to admit evidence. Finally, in Property Alliance Group Ltd v The Royal Bank of Scotland Plc [2015] EWHC 322, the High Court criticised the bank’s “cavalier” attitude to disclosure in hiding 25 million documents relating to allegations of LIBOR manipulation.

Inherent conflicts of interests in regulatory review schemes

It was unfortunate and that the FCA believed that the best party to investigate the banks’ wrongdoing was the banks themselves, and this mistake is being repeated in the review of the activities of RBS’s Global Restructuring Group announced in November 2016, which RBS is conducting itself.

In addition to the inherent conflict of interest in allowing wrongdoing banks to decide claims themselves, which incentivises banks to reduce the amount of financial redress offered to wronged SMEs, regulatory review schemes are beset by other significant problems, including the substantial delays involved. The IRHP review, for example, was announced on 29 June 2012 but took several years to complete, which meant that many SMEs’ legal claims were time-barred and therefore incapable of being pursued in the courts. Further, due to the one-sided conduct of such review schemes, as the banks are the only party to see all of the information involved, SMEs are prevented from understanding the full force of the wrongdoing against them (which is the first step to holding banks to account).

Redress under compensation schemes is frequently criticised for the inherent conflicts of interest underpinning the schemes themselves. For example, under a recent swaps case, the claimant was offered compensation of around £350,000 for what is a claim (including consequential interest) of around £12 million.

Jurisdictional hurdles in SME access to the Financial Ombudsman Service (and potentially to the BDRS)

The Financial Ombudsman Service is of limited utility to SMEs attempting to settle disputes with banks because it is only able to deal with cases for losses of up to £150,000 and does not either punish wrongdoer banks or monitor banks to ensure that they comply with the applicable rules and regulations. Further, a large number of SMEs do not qualify as micro-enterprises and the banks are adept at raising technical arguments on jurisdiction to prevent the FOS from acting.

It is hoped that the BBRS does not employ such stringent (and unfair) jurisdictional hurdles, denying businesses access to alternative redress. However, the SME Alliance have warned that it will not support a Banking Dispute Resolution Scheme with eligibility criteria which excludes the majority of its’ members. We understand that eligibility criteria will be forthcoming in next few weeks.

Will a Business Banking Resolution Service (BBRS) work?

SMEs are too often drawn into complex disputes with banks and other financial institutions, which are beyond the remit of the FOS to address due to FOS’s maximum threshold of £150,000 (now £350,000 from 1 April 2019 against regulated firms). Furthermore, the court system can be costly and risky for SMEs (who do not have the financial and legal sophistication of the banks). The FCA is not equipped to be an arbiter of disputes, and so regulatory review schemes are fatally undermined by the FCA’s reliance on the wrongdoer banks to conduct such review schemes into their own alleged wrongdoing.

It is clear that the current avenues for redress are not working for SMEs; if justice is to be delivered and maintained in the future, a new avenue for redress needs to be created.

However, it remains to be seen whether another redress apparatus with voluntary compliance by major banks (the BBRS) will be able to provide a platform for justice for SME customers and instill confidence in the banking sector by operating as a safeguard against past and future financial misconduct.

In particular, safeguards need to be put in place to ensure that banks do not simply repeat their previous tactics (used in litigation and in regulatory review schemes) of withholding potentially damaging information.

A big step towards creating a functional BBRS that can exercise appropriate control over the financial services industry and fill the lacuna that currently exists in practice for SMEs is for the BBRS to have the power to control the disclosure process and to sanction non-compliance publicly.

LEXLAW Banking Litigation & Dispute Resolution

It is an absolute must that victims of Lloyds BSU, RBS GRG or other bank BSUs protect their legal rights. This is the only sensible course of action when a business is facing a high value dispute with a major bank, such as the Lloyds or RBS. Otherwise, if there is no redress scheme, or if the bank refuses to offer reasonable redress, customers may well find they are time-barred from commencing legal action and their high value claim is now worthless. Legal rights can be protected by taking urgent legal advice and by instructing specialist financial services litigation solicitors to issue a protective claim form or by instructing us to prepare and agree a carefully written standstill agreement.

Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in banking litigation and specialise in representing SMEs in banking disputes. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks and have widespread experience in managing claims through redress schemes (which are similar to the Business Banking Resolution Service (BBRS)). Call us on 02071830529 or complete our online contact form.