Members of the UK200Group of independent accountancy and lawyer firms have today commented 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”.

Financial Conduct Authority (FCA) chief executive Martin Wheatley told the Treasury Select Committee that several hundred businesses were still negotiating with the FCA over compensation.

He added that around a third of firms sold the products – designed to protect against changes in interest rates – had been excluded from the compensation scheme because they failed a “sophistication test”, based on criteria including annual turnover and balance sheet size and the total notional amount of hedge trades in the financial year during which the sale was made.

Committee chair Andrew Tyrie said that firms felt they had been “doubly let down: first by mis-selling and now by the redress process”?

Michael Watts, corporate finance partner, UK200Group member firm Haslers

“We have a number of clients that have been involved in this. There are some that have gone into the redress scheme and are vey happy with the outcome.

“There are others that have been paid through the redress scheme, accepting the statutory interest as compensation, as they feel that to pursue compensation for other losses would be onerous, time-consuming and expensive.  There are a number of instances where the companies have been liquidated and now have to be restored at the client’s cost, which is unfair.

“I am also aware of a vast number of companies that have been deemed to be sophisticated and not eligible for the redress scheme. In my opinion most of those are not sophisticated and didn’t understand the products at all.

“In reality, the individuals selling them on behalf of the banks didn’t understand them either so how a client was ever expected to is a mystery. Those companies then have to take out an expensive legal action, with the associated risks, and they may not be in a financial position to take that course of action if they are still burdened by the swap.”

David Ingall, past president, UK200Group

“Having been involved in the negotiations with one client who bought swaps from one of the bailed out banks, the process is totally unsatisfactory.

“Firstly there was total denial, followed by claims that the client did not qualify and finally after intervention by the FCA, qualification was admitted.

“Even now the additional complication of having moved from one bailed out bank to another means that the actual settlement is currently six weeks late, presumably because the banks can’t agree who actually pays.

“Fortunately the client, while welcoming the compensation and refunds, is not totally destitute but the strain is beginning to show on the professionals.”

Daniel Shear, senior corporate finance partner at UK200Group member firm BKL

“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.”

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Established in 1986, UK200Group is the leading mutual professional association in the UK with some 150 offices of quality-assured member accountancy and lawyer firms throughout the UK totalling over 550 partners, 150,000 business clients and global links in over 50 countries. UK200Group provide services and products that are designed to enhance the business performance of its members.  Telephone 01252 401050, email admin@uk200group.co.uk or visit www.uk200group.co.uk

Disclaimer:

UK200Group is an association of separate and independently owned and managed accountancy firms and lawyer firms. UK200Group does not provide client services and it does not accept responsibility or liability for the acts or omissions of its members.  Likewise, the members of UK200Group are separate and independent legal entities, and as such each has no responsibility or liability for the acts or omissions of other members.

 

 

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