Background to the FCA Review Scheme
Back in June 2012 the FCA announced a Review into the mis-selling of complicated interest rate hedging products to small and medium sized companies (“SMEs”) across the UK. This announcement was welcomed by MBM, as I am sure by thousand of SMEs, as for the first time there appeared to be prospects for a fair and just compensation for all of those who had been mis-sold during the lead up and also following the economic crash of 2008.
The operation of the compensation scheme to date
It did not take long, however, until the initial enthusiasm was replaced by doubts in the fairness and transparency of the review process. Instead of a truly independent body carrying out the review, the decision making on who should and shouldn’t receive compensation was passed to the banks who had committed the mis-selling in the first place. To make matters worse, there was no appeal process to an independent body. Instead, the appeal had to once again be made to the bank that had made the initial decision to either refuse compensation altogether or award compensation on a lower scale than the complaining customer felt was due to them.
During the review process, banks often refused to take into account information put to them by the complaining customers when reaching a decision. MBM has seen several cases where customers had provided evidence to the Bank of accurate rates and more appropriate interest rate hedging products and the Bank simply refused to give any weight to this evidence in their reasoning for reaching an unfavourable decision.
In many cases where mis-sale was determined, instead of providing the customer with full redress, the banks often simply substituted the mis-sold product with an alternative interest rate hedging product under the explanation that the bank believed that the customer would have taken out this alternative product had there been no mis-sale. MBM have come across instances where the alternative product was quoted at a lot higher rates than actually applicable at the time. This in turn resulted in the compensation offered to the customer being lower than it should have been under accurate rate.
Bully Banks fight against the unfair compensation scheme
The compensation scheme is now winding down and an announcement is due to be made by the FCA within the coming months officially closing the scheme. It therefore seemed that this would be the end of the road to many unhappy mis-sold SMEs.
A glimmer of hope, however, returned when Bully Banks, a pressure group representing mis-sold SMEs, announced last week that it is taking further steps towards applying for a judicial review of the flawed compensation scheme. The Telegraph reported that Bully Banks are preparing to serve the particulars of claim on the FCA this month, which is a step preceding the application for judicial review.
This is not the first time steps towards judicial review have been taken in connection with the FCA compensation scheme. In April, Holmcroft Properties won an application to bring a judicial review against KPMG, the independent reviewer of Barclays’ compensation scheme.
Implications of the Review Scheme in the longer term
MBM eagerly waits to see whether Bully Banks are allowed to judicially review the FCA and if so, what the outcome is.
In the meantime, it is worth noting that while the compensation scheme is often viewed as favouring the banks, it can also be considered not to have brought any long term gain to the banks that were so strongly criticised and shamed following the economic crash.
One only needs to look around the high street or put on the TV, to see the multiple advertisements by banks that seek to remind people how fair and pro-customer they are now in their approach to banking. This is obviously with the aim of reinstating the public trust and confidence in banks. The FCA compensation scheme has, however, done the very opposite. It continues to remind thousands of disgruntled SMEs on a daily basis that they were not treated fairly by banks when they were mis-sold and neither were they treated fairly thereafter during the FCA review process.
In light of Bully Banks steps towards applying for judicial review, it remains open to see whether the banks may face further pay-outs to SMEs who initially were provided no or very little compensation.
If you have any queries arising from this article, please contact our Dispute Resolution team on 0131 226 8200.