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BBRS provides evidence to Treasury Select Committee

26 January 2024

Below is a short summary of the points provided by Mark Grimshaw, CEO of the Business Banking Resolution Service, as part of his evidence given to the Treasury Select Committee’s enquiry into SME Finance:

There is a clearly defined, narrow market of BBRS eligible customers

  • The BBRS was formed as a resolution service for a small and clearly defined section of the SME banking market. Currently, approximately 99% of the SME market is covered by the Financial Ombudsman Service, with the BBRS covering a small layer of businesses just outside of the FOS upper limit on turnover size.
  • The eligibility criteria for the BBRS were agreed unanimously before it launched by the Implementation Steering Group (ISG), which comprised of the banks and the SME representatives (including the Federation of Small Businesses, SME Alliance, British Chambers of Commerce, APPG on Fair Business Banking, Institute of Directors and Confederation of British Industry. The process was supported by independent legal advice (provided by Osborne Clarke) and overseen by UK Finance / HM Treasury and the FCA (including the FCA’s SME Advisory Group chair).
  • The key eligibility criteria agreed by the ISG for the BBRS include:
    • A business turnover of less than £10m (at the time they complained to their bank) and above the threshold of £6.5m, which would qualify them for the services of the FOS
    • The issue must relate to a business banking complaint against one of the seven participating banks.
    • The business must have received a final response letter (FRL) from their bank, directing it to the services of the BBRS and it must register the complaint with the BBRS within six months of the date of that letter
    • The incident complained about must have taken place on or after 1 April 2019
    • The complaint must not have been through litigation or have been settled already
  • The BBRS is not an appeals body and cannot consider cases which have already been to some other schemes, the FOS or the courts. The BBRS does not have the statutory powers required to overrule these bodies.
  • The BBRS can only operate within the rules established at set up and has no power to change the eligibility criteria which were unanimously agreed and set by the ISG.

 The BBRS has delivered for the SMEs it was set up to serve

  • Nearly £2m of financial redress has been made as a result of BBRS intervention.
  • This relates to 137 resolved cases and does not include mediated/private settlements.
  • The BBRS offers four types of resolution – adjudication, settlement, conciliation and mediation.
  • Many cases have non-monetary resolutions such as changes in loan terms, adjustments to debt recovery arrangements or interest rates, and adjustments to or cancellation of personal guarantees.
  • All of the outcomes achieved for SMEs are a result of the BBRS’s intervention.

The BBRS has left no stone unturned in trying to encourage eligible SMEs to register their complaint

  • Since its inception in 2021, the BBRS has left no stone unturned in its mission to encourage eligible SMEs to register their complaint with the BBRS – running multiple marketing campaigns, engaging MPs and promoting its service through well-known business facing organisations and individuals across the SME market.
  • In addition, every eligible SME will have received a final response letter (FRL) from one of the seven participating banks, signposting that the services of the BBRS are now available to them should they wish to pursue their complaint further.

The importance of data and avoiding optimism bias

  • Despite all the efforts above, the BBRS has seen much lower case numbers than the 6,000 cases over three years, which were originally forecast for its service at its inception.
  • This lower number of cases was validated by independent research from Bayes Business School, commissioned by the BBRS in 2021 to investigate the low caseload. Their detailed estimates showed that the BBRS could expect to receive no more than 1600 cases and that there was significant optimism bias at play regarding predicted case volumes when the BBRS was first designed by the ISG.
  • Further independent research commissioned by the BBRS and conducted through Public First, who spoke to 522 senior decision makers from a wide range of SMEs that fall within the BBRS remit, found 86% were satisfied or very satisfied with their banks.
  • The evidence, data and current case volume suggest the customer base anticipated for the BBRS is not there.

BBRS independence and the Bank Appointed Member

  • Two Post-Implementation Reviews of the BBRS found that the BBRS is independent, and that cases are resolved fairly and independently.
  • For voluntarily funded independent organisations it is common for there to be safeguards to manage how the funding they receive is spent. The Bank Appointed Member safeguards:
    • Our rules and purpose (Articles of Association)
    • How the BBRS is wound down
    • What happens next for the scheme (how and if it is transferred)
    • Changing our name

The future of dispute resolution

  • Not a penny of taxpayer’s money was used to set up and fund the BBRS – the BBRS is currently funded solely by the seven participating banks.
  • It is down to the seven participating banks to determine the future of the BBRS and the scheme it is currently running.
  • Based on the last three years of service, the BBRS makes the following observations about the future of a dispute resolution service in the SME banking world:
    • For banks:
      • Banks should ensure clarity of communication by using language that is easy to understand
      • Around Personal Guarantees, they need to ensure SMEs have a full understanding of obligations and practical clarity on release
      • Improve fraud prevention and enable easy reporting by customers
      • Improve transparency of fees and product features
    • For government:
      • Any case for a resolution service should be built only on data – avoiding optimism bias
      • For the same reason, vested interests able to influence decision making at the set-up stage should be avoided
      • For any dispute resolution service to be credible it must be perceived to be independent.
  • It is for lawmakers and policy makers to determine the future of dispute resolution services for SME banking complaints in the UK.

Mark Grimshaw, CEO of the BBRS, comments:

“Over the last three years, the BBRS has been able to provide a free dispute resolution service to SMEs that would have been previously excluded or had to pay significant amounts for any type of similar service.

“Within the small market we serve, we have made nearly £2m of financial redress, as well as many non-monetary resolutions such as changes in loan terms, adjustments to debt recovery arrangements or interest rates, and adjustments to or cancellation of personal guarantees.

“While our data and research show that the market of eligible SME banking complaints is significantly smaller than what was anticipated during our set up stage, it’s important to remember that none of the outcomes we have achieved on behalf of SMEs would have happened without the intervention of the BBRS.”