A legal challenge brought by small businesses over their exclusion from a mis-selling compensation scheme could lead to thousands of firms receiving large pay-outs. Around 20 small companies will this week unveil plans to take the government to court over its handling of the investigation into so-called interest rate swaps. The Financial Conduct Authority has set up a compensation scheme after probing evidence that banks had wrongly lured companies into complex and costly deals, but a number of small businesses believe that they have been unlawfully excluded, and that the government should make good their losses. Businesses were excluded if they had revenues of more than £6.5m, assets of more than £3.26m or more than 50 staff. Those with swaps worth more than £10m were also not eligible.
Source: The Sunday Times
The logic of excluding larger companies from the scheme was that they are more sophisticated and therefore ought to have understood what they were signing up to, or at least ought to have been able to have afforded professional advice to explain to them what they were signing up for. This logic is flawed. Given the underhand tactics used by some managers at one or two of the banks to sell inappropriate products, when the managers were on commission to sell such products, meant that few people without a masters degree in economics and banking could possibly have understood some of the hedging products which were mis-sold.
Of more concern however are the numerous small companies who were still excluded from the scheme on technicalities. They were certainly small enough to not be considered sophisticated, but were nevertheless excluded on other grounds. One can only but hope that the FCA will widen the scheme to include all businesses who were mis-sold an inappropriate hedging product. Somehow we doubt that will happen. After all, the scandal has already cost the banks millions, and the FCA has a dual role in protecting the banks as well as protecting their customers.
