UK lacks '˜adequate' resolution system for SMEs with complaints about banks, says FCA's chief executive

Mr Bailey said the banks had learned a very harsh lesson since the financial crisis of 2008, but the FCA was still dealing with the legacies of that period.

Mr Bailey, who took on the top job at the regulator in July last year, made the comments during a trip to Leeds and Bradford to meet campaigners who are worried about the rising level of consumer debt.

Britain’s banks have been hit by scandals ranging from the manipulation of foreign exchange and benchmark interest rates to the mis-selling of loan insurance and complex interest-rate hedging products to small firms.

Some commentators believe regulators failed to act promptly to gain compensation for small firms who were the victims of mis-selling. Mr Bailey said the FCA was focusing on a number of major issues facing consumers, such as high cost credit.

“SMEs (small and medium sized enterprises) are important too,’’ he said. “This is, I think, one of the most difficult issues we face. Many of the activities that have caused the most difficulty in recent times are actually outside the formal regulatory scope of the FCA.

“But they are still undertaken by firms whose conduct we regulate, in a broad sense, so they are of relevance to us.

Mr Bailey added: “One of the things I am very involved in at the moment with Parliament is the question of having an adequate complaint resolution mechanism for small firms.

“There isn’t one at the moment.”

Mr Bailey said the ombudsman service – which exists to look into complaints about companies and organisations – was predominantly for individuals.

He said: “One of the things that is very clear from looking at the recent cases, interest rate hedging... is a prime example, is that there’s a missing piece, in my view, in the landscape.

“Which is, ‘How do small firms feel they can get independent resolution of their complaints, when they have complaints against banks?’

“All sorts of schemes have been put in place to deal with individual issues in recent years, but it’s fair to say that small firms have strong doubts that this has been effective.

“It’s in the interests of everybody, including the banks, that there is an effective dispute resolution mechanism for small firms.

“You can’t say to small firms, ‘Just go off to court.’

“Taking a bank to court is an expensive business. They will quite rightly turn round and say, ‘We can’t do that.’

“That goes also with the question of looking at our role in regulation, that’s actually a matter for Parliament.

“But I am very keen, and a number of MPs have now taken this up, and the Government have said they will look at it.”

Mr Bailey added: “I think it’s very important that we have, for small firms in this country, an adequate dispute resolution mechanism.”

The Financial Conduct Authority is the conduct regulator for 56,000 financial services firms. Mr Bailey said the FCA had just over 3,500 staff operating in a “very big landscape”.

He added: “The answer is to make our role and our activities well defined and transparent and to improve our accountability as well.”

When asked if he thought the banks had learned their lessons, he said: “I think the lessons have been very harsh. What I would say though, is that we are still dealing with the legacy of that period, in the conduct area for a number of reasons. One is obviously, things like PPI (mis-sold payment protection insurance) are still going on.”

In December, the FCA delayed its final decision on setting a deadline for consumers to claim compensation for PPI. A further announcement is expected in the next couple of months.

Mr Bailey added: “There is quite a lot of what I would call business model change happening, which is a necessary response to the sort of causes of those problems. That is still working its way through the system.”

Mr Bailey assumed the role of chief executive of the FCA in July 2016.

Last year, the FCA launched a consultation process on its mission, which is designed to provide a “guiding set of principles” around the strategic choices the FCA makes.

Mr Bailey said: “Conduct regulation in finance is quite new.

“We’ve been doing a lot of work since I became chief executive last summer on what the role of the FCA is.

“We’ve put out a consultation paper on that and we will be firming it up by Easter. We’ve got a lot of work to do to explain ourselves.”