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Invoice Financiers and the Financial Ombudsman Service

On 1 April 2019 the jurisdiction of the Financial Ombudsman Service (“FOS”) was extended to include additional categories of eligible complainants such as more SMEs and individual guarantors of loans. The FCA has also indicated that it intends to increase the limit of an award which can be made by the FOS under its compulsory jurisdiction scheme from £150,000 to £350,000, probably sometime later in 2019.

There has been discussion within the invoice finance industry as to whether these changes affect invoice financiers. It is fair to say that the written material circulated by the FCA was read by some as suggesting that this may be the case, and for example there are references to guarantors of unregulated loans now being subject to the FOS scheme.

However, having carried out a detailed analysis of the legislative scheme underpinning the FCA, we are firmly of the view that the jurisdiction of the FCA and its ability to operate the FOS scheme is limited to financial products which either are currently regulated or which the FCA may in the future have power to regulate and which are listed in schedule 2 of the Financial Services and Markets Act 2000, which for example includes:-

“23 Loans and other forms of credit

(1) Rights under any contract under which one person provides another with credit.

(2) “Credit” includes any cash loan or other financial accommodation”.

Because it is now well established that invoice finance does not involve the provision of a loan or other form of credit, our view is that the extension of the jurisdiction of the FOS does not directly impact the invoice finance industry.

Having said that there are pointers in the voluminous material generated in the relevant FCA Policy Statement and elsewhere that the direction of travel is very much towards further supervisory jurisdiction or other regulatory imposition upon the financial services industries as a whole, and many feel that it is only a matter of time before some form of regulation directly impacts the invoice finance industry within the next few years.