Schemes that have been set up to provide compensation to small firms who have been mistreated by the big banks “after the horse has bolted” are inadequate and cause human and economic damage, according to an MP who chairs an influential all-party group.
George Kerevan, the SNP MP for East Lothian, claimed that mis-selling scandals which caused misery for small firms might have been prevented if an effective system had been put in place to ensure they had access to justice.
Mr Kerevan who chairs the All Party Group on Fair Business Banking, said: “For too long there has been an accepted view that, between the Financial Ombudsman and the courts, businesses have adequate access to dispute resolution, not to say justice. This is, quite simply, not the case.
“Courts are prohibitively expensive and time consuming, and to expect even a moderate business to take on the might of a multinational financial institution as an equal is nonsensical. But we aim to change that.”
Mr Kerevan said that contractual transparency, mediation, adjudication and tribunals are used by industries and sectors such as construction and employment.
He added: “Yet they are completely absent in the unregulated commercial financial landscape. We firmly believe that, had such a system been in place, scandals such as the interest rate hedging mis-selling and RBS’s Global Restructuring Group would have been discovered much earlier or prevented in the first place.
“The creation of ad-hoc compensation schemes after the horse has bolted is simply not good enough, and the economic and human damage that happens before even getting to the stage of redress is unacceptable. We seek a better way.
“Small businesses really are the life blood of the economy, so we must bring the bank dispute systems into line with our rhetoric, and give small firms the platform they require to be heard.”
Mr Kerevan said that the current GRG compensation scheme proposed by RBS is a perfect example of the “inadequacy” of the system.
In November last year, RBS announced it was to put aside £400m to help compensate as many as 4,000 small and medium-sized businesses following allegations that they were mistreated by the bank’s Global Restructuring Group after the financial crisis.
Mr Kerevan added: “Former owners of insolvent businesses are actually precluded from seeking redress in this so-called redress scheme. Any compensation goes to the creditors - RBS itself. How crazy is that?”
A Treasury spokesman said: “It is important that banks treat customers fairly. That is why we set up the independent Financial Conduct Authority and gave it strong, new powers to protect consumers. It is currently looking at the small business banking market and we await its findings.”
RBS declined to comment.
Last week, Andrew Bailey, the chief executive of the Financial Conduct Authority, said that Britain
lacks an “adequate” complaint resolution mechanism for small firms who believe they have been mistreated by the banks.