Improving Small and Medium-Sized Enterprises (SME) rights by permitting rights of action for breaches of Financial Conduct Authority (FCA) handbook.

Today (22 February 2021) is the first day of Committee Stage for the Financial Services Bill in the House of Lords. I will be speaking in support of several amendments and putting forward three particular amendments in my own name.

The first of these is amendment 129 which aims to improve rights for SMEs and address the power imbalance that can occur between SMEs and financial institutions. The full text of the proposed amendment:

Insert the following new Clause—

“SME rights of action for breaches of FCA handbook

(1) The Secretary of State must, within 3 months after the date of the passing of this Act, lay before both Houses of Parliament draft regulations to allow small and medium-sized enterprises rights of action for breaches of the FCA handbook.

(2) Regulations under subsection (1) are subject to the affirmative procedure.”

Amendment 129, Lord Holmes of Richmond, Committee Stage Day 1, Financial Services Bill, House of Lords 22 February 2021

The purpose of this amendment is to attempt to bring clarity and greater consistency to this whole area.

As things currently stand, these rights of action are only allowed to individuals. SMEs, partnerships and corporates are all excluded. The effective (and unfortunate) outcome of these exclusions is that SME commercial lending is not being regulated above £25,000.

If an SME is mistreated by a bank, for example, its ability to go to court relies purely on the letter of the contract or agreement it signed with that bank. Sadly, we do know that there have been significant instances of banks’ activity in this area being – shall we say – sub optimal:

  • LIBOR manipulation,
  • swaps ‘use’,
  • the RBS Global Restructuring Group SME activities
  • the Lloyds HBOS Reading activities.

In such situations, it is more than difficult for SMEs to challenge the banks in any significant way, first, because it is almost impossible to take a bank to court due to the costs involved, and secondly, because when they get to court they only have the letter of the agreement to assist them.

This amendment seeks to alter this imbalance.  It would provide greater clarity and  consistency across the rules of the FCA.  Crucially, it would provide support and appropriate protection to our SMEs: the beating heart of our economy.  

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