By Huw Jones
LONDON (Reuters) - A new financial complaints tribunal for small businesses would be overly costly and take years to set up, a report commissioned by financial services body UK Finance said on Tuesday as it recommended revamping existing services to meet their needs instead.
Relations between lenders and small firms have come into focus since the financial crisis, with some banks and their executives accused of asset stripping clients for personal gain.
The report, chaired by former Institute of Directors chief Simon Walker, said a new division within the Financial Ombudsman Service (FOS) could focus on disputes between banks and small and medium-sized companies (SMEs).
The recommendation disappointed some lawmakers.
"If feels quite timid," Rushanara Ali, a member of parliament's Treasury Select Committee, told Walker in a hearing on Tuesday.
Committee members expressed doubts that FOS could revamp itself by next year without a "hurricane" behind it.
Walker told lawmakers that a tribunal would be costly as they involve lawyers, and would take years to legislate given that parliament is clogged up by Brexit.
Revamping the FOS could be done by mid-2019 and offer a faster, cheaper service, Walker said.
"I am not crusading against tribunals," he added.
The All-Party Parliamentary Group on Fair Business Banking, a cross-party group of UK lawmakers, have called for a tribunal, and said it could not accept that Walker's proposal would provide a level the playing field between business and banks.
FOS said it would carefully consider Walker's report.
FINANCIAL DISTRESS
FOS has become the largest ombudsman of its kind in the world, swollen by dealing with complaints over payment protection insurance (PPI) for loans, Britain's costliest financial scandal.
Walker said that instead of cutting staff as a deadline for PPI complaints passes next August, FOS could retain the employees for the new business complaints unit.
The report said banks dealt with small businesses in a "cavalier manner" during and after the financial crisis by calling in loans and causing distress.
Royal Bank of Scotland's (L:RBS) Global Restructuring Group for instance has been accused by some small firms of stripping their assets. The bank has said it regretted mistakes made with some customers.
FOS, free to complainants, handles disputes that individuals and small firms have failed to resolve with financial firms. Many businesses have complained they are too big to be eligible and the only alternative is a costly court case.
It can only deal with complaints from firms that have a turnover of less than 2 million pounds ($2.6 million) and fewer than 10 employees.
The Financial Conduct Authority said last week that from next April firms with fewer than 50 employees and annual turnover of less than 6.5 million pounds will also be able to use the service.
The FCA has proposed raising the compensation limit to 350,000 pounds from next April, up from 150,000 pounds at present. Walker said it should be increased to 600,000 pounds.
In a bid to "bring closure" to disputes going back to the financial crisis, Walker also recommended banks should agree that FOS can deal with legacy disputes that have not been dealt with by a court or arbitration service before.
UK Finance Chief Executive Stephen Jones said the industry body would work with banks and others on how best to take the Walker recommendations forward.
(Refiles to add dropped word in first paragraph)
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