A financial services tribunal could boost the City’s competitiveness by providing a body of consistent case law and a route for firms to seek justice, experts told City AM.
Speaking to City A.M. Richard Samuel, barrister at 3 Hare Court Chambers, said “London’s common law dispute resolution system is a key part of what makes it competitive for financial firms”.
He argued that regulators have increasingly been given extensive powers to impose rules without corresponding checks or balances. Since Brexit, this trend has only accelerated after powers previously held at an EU-wide level were passed to the UK’s financial regulators.
This potentially poses problems to the financial sector, Samuel argued, because regulation is “inherently less predictable as it establishes broad obligations such as ‘fairness’”.
“Worse, no judges have the power to write any reasoned judgments which clarify their regulations,” he continued.
To temper the extensive regulatory powers, Samuel suggested that a financial services tribunal – modelled on tribunals in other sectors – should be introduced to help resolve disputes and establish clear case law.
“As the costs of compliance with regulations continue to increase, London needs to reap the competitive advantage of its common law dispute system by putting future regulatory disputes into a Financial Services Tribunal,” Samuel concluded.
A tribunal would also ensure firms had access to a reliable dispute resolution system in place of the ad hoc redress schemes established in response to various banking scandals since 2008. This problem is particularly acute for SMEs.
Lending to small businesses is an unregulated activity, which has put SMEs at risk of malpractice from banks. Over the last few years, many SMEs have been caught up in huge financial scandals with many struggling to resolve their disputes.
These cases are often too big and complex for the Financial Ombudsman Service. However, the firms involved rarely have enough funds to pursue the dispute in the courts either.
This means SMEs in particular can face an ‘access to justice gap’, with few avenues available to secure redress.
William Wragg, co-chair of the APPG on Fair Business Banking, said a tribunal could “correct the power imbalance inherent in disputes between businesses and large financial institutions”.
While the Business Banking Resolution Service (BBRS) was established in 2019 specifically to resolve many of the more complex disputes, Wragg argued it was “a painfully inefficient and largely ineffectual exercise”.
“It has become clear that voluntary schemes do not work,” he said.
Similarly Ned Beale, a partner at Hausfeld, argued that customers need an “entirely neutral and expert dispute resolution platform capable of delivering reasoned judgments on complex claims”.
“What the business community needs is either a statutory tribunal within the existing court service or an arbitral tribunal administered by one of the established arbitral institutions,” he concluded.
The BBRS said: “Since its launch, the BBRS has helped hundreds of SMEs to tackle a range of highly complex business banking complaints, and many have walked away with life changing sums of money.
“To date substantially more than £1m in financial awards have been made to SMEs, and when BBRS intervention results in a direct settlement between SMEs and banks, the BBRS is not always party to the final sum agreed, which means this figure is significantly higher”.