Business Banking Resolution Service

Andy McDonald Excerpts

Tuesday 11th July 2023 Westminster Hall

[Mr Wragg]

Absolutely so. The courage of those small and medium-sized business owners is not to be underestimated. I have dealt with constituents whose cases go back decades. They have had more than patience; they have had the utmost resilience. Many would have given up by now, but such is the injustice—the wrongs that we need to right—that we must, on their behalf, respond with similar courage.

The expansion of the remit of the Financial Ombudsman Service in 2019 to include more SMEs and increase the maximum award level narrowed the gap to some extent, but did not close it. Neither has the gap been plugged successfully by the ad hoc redress schemes established by banks in the years following the 2007 financial crisis for those impacted by scandals such as the interest rate hedging product mis-selling, the mistreatment of small business customers by the Royal Bank of Scotland Global Restructuring Group and the HBOS Reading fraud.

The schemes that have been set up have all been heavily criticised for, among other things, a lack of independence and overly restrictive eligibility criteria. It was against that backdrop that the BBRS was established as a voluntary initiative to the specifications of, and funded by, seven participating UK banks. It was intended to help rebuild trust among the SME community by resolving historical and contemporary disputes between banks and those businesses. It thereby filled a gap in dispute resolution and redress.

[Andy McDonald (Middlesbrough) (Lab)]

Does that list extend to Lloyds bank? I have a constituent who is a reasonably successful property developer and was encouraged by Lloyds bank to take out larger and riskier loans. He took independent advice, only to find that the person advising him was on commission from Lloyds bank. The ultimate outcome was that he was foreclosed upon, and his life was ruined. That example shows, in all its gory colour, that the current system of resolution is not working.

[Mr Wragg]

I am afraid that the hon. Gentleman highlights one of many cases across our constituencies. I perfectly well understand his constituent’s sense of injustice. Hopefully this debate will at least give us an idea of the way forward.

The BBRS followed from the Walker review, commissioned by UK Finance, which identified a gap in dispute resolution and recommended that a voluntary scheme be established. It recommended action to deal with legacy disputes and contemporary complaints by providing speedy resolution for larger SMEs’ ongoing financial complaints. A proposal to set up a financial services tribunal was made at the time by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) and the Treasury Committee in its 2018 report. The Treasury Committee report noted strong cross-party support for the proposal. For a number of reasons, including a lack of parliamentary time and the significant costs involved, the Walker review did not support the creation of a tribunal.

The BBRS was also established to ensure the excesses of the financial crisis were not repeated, and that record keeping and data flows about SMEs can be used to monitor bank behaviour and culture, and can provide an early warning system for customer mistreatment. That was a key purpose of the Walker review, beyond providing a new mechanism for dispute resolution.

A 2019 letter to Stephen Jones, the then CEO of UK Finance, the then Chancellor of the Exchequer, Philip Hammond, made Her Majesty’s Government’s position on the nascent scheme abundantly clear. It stated:

“If it transpires that the scheme is not bringing resolution to a meaningful number of complaints…then I would expect there to be further discussions around the scope of and eligibility for the backward-looking scheme.”

That gets to the nub of the issue.

--- Later in debate ---

[Stewart Hosie (Dundee East) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate the hon. Member for Hazel Grove (Mr Wragg) on bringing this debate before us. He is absolutely right: businesses need access to a proper, functioning dispute resolution service, but I fear that the BBRS is not it. He was also absolutely correct that redress cannot be left only to those with the time, money and patience—or, as he said, the bravery—to sue the banks. The hon. Lady the Member for Rutherglen and Hamilton West (Margaret Ferrier) made the most salient point that barely a few dozen of the 60,000 legacy cases that were potentially liable to be investigated or taken up by the service have been resolved. That is a problem.

[Andy McDonald]

Are we assuming that those legacy cases fit the criteria set out by the hon. Member for Hazel Grove (Mr Wragg)? Many of our constituents will be nowhere near those criteria, but their lives and businesses lie in tatters. Are they not included? Are they not in anybody’s thinking, in terms of the resolution that they deserve?

[Stewart Hosie]

They ought to be in people’s thinking. The figure of 60,000 is commonly used. Of course, the eligibility criteria include that they must not be eligible for the FOS scheme, as was very properly referred to by the hon. Member for Hazel Grove. However, let us assume that it is a big number, in the tens of thousands, and let us hope that, at the very least, businesses do not fall through the cracks between this service and the FOS. It would be a different problem entirely if people were not eligible for any kind of access to at least one of the redress systems.

The hon. Member for Hazelgrove laid out a bit of the background. I want to go through some of that again briefly, given that it is quite important in terms of what the Government may choose to do next. The BBRS was set up in 2018 to help SMEs resolve disputes with their banks free of charge. Many high street banks, including Lloyds, NatWest and HSBC, took part in the scheme, and it has been operating—although I use that word loosely—since 2021. It was created after a spate of banking scandals involving the mistreatment of thousands of companies, including, as we know, the Royal Bank of Scotland’s GRG, and similar operations at other banks in the aftermath of the 2009-10 financial crash.

The eligibility criteria, which have been mentioned, are that the dispute must have occurred after 1 April 2019, and that the SME must have an annual turnover of up to £10 million per annum and a balance sheet of up to £7.5 million, and must not be eligible to take the complaint to the Financial Ombudsman Service. Many stakeholders have noted that the scheme has not been successful in helping SMEs to resolve their disputes, despite costing—as we have heard—tens of millions of pounds to set up, which was paid for by the industry. One of the main issues with the scheme is the narrow eligibility criteria for SMEs to use the service. The recent figure was only 35, but even 50 or 60 would still represent a tiny fraction of the number that could be resolved.