BKL corporate finance partner Daniel Shear comments via the UK200 Group on news that hundreds of business are still seeking compensation for mis-sold interest rate swaps and thousands of larger businesses have been excluded from the redress scheme because they were deemed “sophisticated”.
“The process has been flawed as the timetables were insufficiently strict, meaning compensation was delayed to many of the SMEs who needed the redress most.
“Another flaw was the somewhat arbitrary process by which certain types of products were included and others excluded. For example, non-sophisticated borrowers who took out a fixed rate swap were invited to opt in to the review, when many of them would have been happy taking out a fixed rate loan in the first place.
“Mis-selling would have occurred if, for example, break fees were inadequately explained, but the provision of a fixed rate swap was not necessarily mis-selling in itself. So some businesses have received redress to which, in my opinion, they were not necessarily entitled. Conversely, non-sophisticated borrowers who were sold a cap had to complain to their bank to be included in the process, yet a cap is a more complex product that a fix.
“The lack of an appeal process is a major flaw of the FCA review. I’ve witnessed many cases where the bank has rejected claims for compensation either on spurious grounds or without even providing proper explanation.
“The banks point to the fact that an independent reviewer oversees the process, but as each bank appoints (and pays for) the reviewer it is unclear quite how independent they are. Many SMEs who were genuinely mis-sold a swap have been denied rightful redress. The FCA themselves are not involved in the process unless the process has not been followed properly, leaving legal action as the only remaining option for many SMEs denied redress. Yet how many SMEs can afford to pay lawyers to sue a major bank?
“Although the FCA has a thankless task it is time that they admitted the review process has not worked properly and implement new procedures so those genuinely mis-sold a derivative are able to obtain redress.”