Greg Wright: Bank misconduct drains lifeblood of small business

The sins committed by unruly elements of the banking sector have been well documented, but – incredibly – almost a decade after the financial crash brought the UK economy to its knees, small firms still lack an effective defence against those major banks who abuse their position of power.

Many of these firms, which are run by the honest, hard-working people our Government claims to support, have been destroyed or pushed to the brink after being mis-sold complex interest rate hedging products.

The failure to provide small firms with an effective, cheap and timely means of redress is dragging our economy down.

You don’t have to take my word for it. George Kerevan MP, the respected chair of the all-party Parliamentary group on Fair Business Banking, has been infuriated by the lack of regulatory protection for the small and medium sized enterprises (SMEs) who are the life blood of our economy.

He told The Yorkshire Post: “The economic cost of these scandals in terms of the negative impact of SME growth – never mind the human cost in suicide, depression and failed marriages – has been catastrophic.

“We are failing our small business community by not giving them the legal platform to challenge a big lender when they are treated unfairly.”

For years, Britain has been hampered by surprisingly poor levels of productivity despite the relatively robust growth of the economy. It is suspected that small firms have become reluctant to borrow and invest after having their fingers burned by the banks.

According to Mr Kerevan, it’s no wonder small firms are so cautious “given the bullying tactics used by big banks when defending themselves from legitimate accusations by SME customers of mis-selling and forced insolvency”.

We need to create a tough regulatory environment that will ensure small firms have speedy access to justice when they believe they have a grievance against the banks. Unfortunately, such a regulatory mechanism doesn’t exist.

I was impressed by the honesty of Andrew Bailey, the chief executive of the Financial Conduct Authority, who told me that Britain lacks an “adequate” complaint resolution mechanism for small firms who believe they have been mistreated by the big banks. He said he was working with Parliament to try to find a way of putting this right.

In the absence of an effective regulatory mechanism, small firms are left with a pretty bleak prognosis. They can hope the bank accepts that their mis-selling complaint is valid and pays some form of compensation, or they can take the bank to court. The latter option is simply beyond the means of most.

Many people still yearn for the days when the banks were a model of conservatism and stability; when a bank manager from the Captain Mainwaring school would take a long hard look at you before deciding whether to extend credit. The branch manager understood the needs of the community, and had no interest in forcing products on customers who did not understand the risks.

Just after the turn of the century, elements of the banking sector decided to lend recklessly. The cultural shift which followed had devastating consequences for the economy, and small firms in particular. Branch closure programmes robbed many smaller towns of their financial heart. Neighbouring businesses suffered because fewer people have a reason to visit the high street.

So is there any light in the gloom? Mr Kerevan hopes so. The all-party Parliamentary groups on Fair Business Banking and Alternative Dispute Resolution have launched an inquiry into “suitable mechanisms” that can provide a long term resolution process for firms who find themselves in a financial dispute. It’s secured “positive engagement” from Mr Bailey, the chief regulator, and the inquiry will look at the role a potential financial tribunal could play in helping to resolve disputes.

This approach sounds heartening, but I’m not convinced this will lead to sweeping changes overnight.

The Government has promised to look closely at the findings, but it has also said that it is committed to regulating “only where there is a clear case for doing so” 
in order, argue Ministers, to avoid 
putting extra costs on firms that would ultimately be borne by the customers of these firms.

Ominously, the mood across the Atlantic has changed. President Donald Trump is committed to reducing the regulatory burden on the big banks. In Brexit Britain, where the US leads, Theresa May’s Government is likely to follow. The Government could fear that any tightening of the regulatory screws might offend the White House.

The risk is that our small firms – the nation’s life blood and backbone of the economy – may still see justice delayed, and, ultimately, denied.

Greg Wright is the deputy business editor of The Yorkshire Post.