By Huw Jones
LONDON (Reuters) - Britain's financial complaints service could be revamped within a year to better serve small firms, a report recommended on Tuesday, rejecting calls from lawmakers for a new tribunal.
Relations between lenders and small businesses have come into focus since the financial crisis after some banks and their executives were 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).
A new panel would advise the division on banking issues, said the report, which was commissioned by UK Finance, a banking trade body.
The recommendation is likely to disappoint lawmakers who have expressed doubts that the FOS could cope with an expanded remit and argued that revamping the body won't go far enough.
Tribunals can be expensive to run and use and would take years to legislate given that parliament is clogged up by Brexit, the report said. Revamping the FOS could be done by mid-2019.
"The creation of a new tribunal vehicle solely for dealing with the financial sector would represent a significantly burdensome and bureaucratic addition to current UK legal infrastructure," the report said.
The All-Party Parliamentary Group on Fair Business Banking, a cross-party group of UK lawmakers who back the idea of a tribunal, said the Financial Services Tribunal is supported by senior lawyers and many banks, despite Walker dismissing the tribunal as simply being popular with politicians.
"We simply cannot accept that this would provide the holistic dispute resolution scheme that is required to make sure we level the playing field between business and banks and will continue our campaign until we do deliver the right solution," the APPG on Fair Business Banking said.
The FOS handles complaints 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.
The report said banks dealt with small businesses in a "cavalier manner" during and after the financial crisis. "Loans were called in, many businesses suffered financial distress and some collapsed," it said.
Royal Bank of Scotland's <RBS.L> 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.
The FOS can only handle 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 be able to use the FOS, a big increase in the number of eligible firms.
But in a bid to "bring closure" to disputes going back to the financial crisis, Walker also recommended banks should voluntarily agree to mechanisms for resolving disputes at firms with turnover of between 6.5 million and 10 million pounds.
These mechanisms could also address some legacy disputes that have not been dealt with by any court or arbitration body.
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.
(Reporting by Huw Jones; Editing by David Holmes)