Mis-selling Derivatives Victims Eye Mass Bank Lawsuits Post-FCA Review
Small to medium enterprises that believe they have been mis-sold complex interest rate swap agreements (IRSA), but were excluded from the regulator's scheme, are looking to band together to take Britain's biggest banks to court.
Speaking exclusively to IBTimes TV, chairman of independent lobby group Bully-Banks Jeremy Roe said many businesses have either felt let down by the Financial Conduct Authority's (FCA) review or have been excluded from the outset and are therefore weighing up the option to join forces to sue the banks for compensation.
"There were nearly 30,000 of these products sold to SMEs, 35% of those were excluded from that scheme in the first place," said Roe.
"We have 20% of those businesses, who were included in that scheme, now having wholly unsatisfactory redress offers. Our view is simple, all those businesses should come together and we're going to organise and orchestrate the resolution of this issue, ultimately in the courts.
"It's about getting businesses to work together to get to the second stage in our campaign, which is get a resolution after experiencing an ultimately unsatisfactory scheme.
"What we are saying is that we need to collaborate and coordinate and the data we have will help all of those excluded from the scheme."
The FCA reviews process allows the banks, with the help of an independent reviewer that the financials also appoint, to investigate the IRSAs sold to determine if mis-selling occurred.
The banks are also in charge of deciding whether compensation is due and also the scale of redress. However, there is no deadline for any of the investigations or a scale of compensation within the agreement.
Banks have set aside around £3bn to deal with the scandal but this total includes coverage for administrative costs, such as staffing.
What is an IRSA?
Interest rate swap agreements are contracts between banks and customers where typically one side pays a floating or variable rate of interest and receives a fixed rate of interest payments in exchange.
Such contracts are used to hedge against extreme movements in market interest rates over a given period. Companies that saw the value of these products move against them as rates fell during the recession now owe banks inordinate sums of money in yearly interest payments.
The latest set of FCA data shows banks have also only paid out 20% of the money set aside to deal with the scandal, despite the redress scheme nearing the end.
"Around 13,000 customers (80%) have already received a redress determination," said the watchdog in a statement at the time.
In total, banks have forked out only £798m to 5,732 customers, out of nearly 30,000 cases assessed for potential mis-selling within 12 months of starting the review.
"The FCA are being optimistic that the review is coming to an end. The review is an odd process and while thousands have been given redress, there are some that have either been excluded from the scheme (after being sophisticated investors) or only offered another product in the IRSA's place," said Roe.
"For the 20% of the businesses offered 'redress', we deem the results as 'bad'. For example, these SMEs have either been offered alternative derivatives product- a swap for a swap- and little or no redress at all.
"We have stated for two years that alternative product is not an equitable solution or appropriate form of redress and we will continue to challenge that. Furthermore, very few have resolved consequential loss claims and this is a huge issue."
For the full video interview, check out IBTimes TV or the video at the top of the page.
FCA and Barclays' Statement
The FCA responded to the interview with a statement to IBTimes UK:
"It is hugely disappointing that thousands of small businesses were mis-sold these products and left out of pocket. That is why we have acted to get firms the fair redress they're due.
"This is a huge compensation scheme that has seen 30,000 cases reviewed, which to date has returned almost £800m to over 5,700 small businesses, and thousands more have offers of compensation in the post.
"We designed this compensation scheme to be as quick as possible, as simple to understand as we could make it and, above all, fair. That means ensuring that those smaller businesses that were unlikely to have the specific expertise to understand the risks are put them back in the position they would have been in had they not been mis-sold these products.
"To ensure it was fair, we put in place independent reviewers to check the banks' work, look over complaints and agree that decisions on redress were equitable. And, when we were concerned about the pace of the review, we made changes with the banks that resulted in a speeding up of payments of initial redress."
Barclays, which is also cited in the video interview said in a statement to IBTimes UK:
"It is in Barclays' interests as well as our customers to complete this complex review as fast as possible and our 600 dedicated staff are working hard to achieve this. Where we have made mistakes, we will put them right."
© Copyright IBTimes 2024. All rights reserved.