Regulator under scrutiny from MPs over swaps redress scheme
By Matt Scuffham
LONDON (Reuters) - Financial regulator will next week come under scrutiny from lawmakers debating whether thousands of small firms which were wrongly sold interest rate hedging products were treated fairly in a compensation scheme it set up.
The mis-selling is one of a number of scandals involving British banks in the past five years, ranging from the attempted manipulation of foreign exchange and benchmark interest rates to the mis-selling of loan insurance.
The Financial Conduct Authority (FCA) ordered banks to review nearly 30,000 cases for possible mis-selling after finding serious failings in the way the products were sold and told them to compensate victims. However, the redress scheme has drawn sharp criticism from small businesses that believe it is loaded in favour of banks.
More than a third of businesses were kicked out before the scheme even began on the grounds that they were too big or else should have understood what they were buying. Of those admitted, fewer than half got full cash compensation.
Banks set aside 4.4 billion pounds ($6.7 billion) to compensate small businesses but have so far paid out only 1.5 billion.
The All Party Parliamentary Group on Interest Rate Swap Mis-selling will debate the issue on Thursday.
BANKS MAKE DECISIONS
Political sources told Reuters that the debate will examine why thousands of firms were excluded and why so many companies were offered alternative hedging products instead of cash compensation.
"What I’m particularly looking at doing is questioning how effective the regulator has been in the whole thing. From the point of view of the businesses that have been affected by it it’s incredibly bad news," said Conservative Mark Garnier.
The hedging products, known as swaps, were meant to protect smaller companies against rising interest rates, but, when rates fell, the companies had to pay extra charges, typically running to tens of thousands of pounds. Companies also faced penalties to extricate themselves from the deals, which most claimed they had not been made aware of.
Barclays said last month it was reducing its total payout budget by 160 million pounds to 1.34 billion. Royal Bank of Scotland has set aside 1.46 billion, HSBC 616 million and Lloyds Banking Group 580 million.
The scheme relies on banks themselves to decide who is eligible for compensation, working with assessors including big accountancy firms such as KPMG which, while independent, are appointed by the banks.
"There’s still a fundamental problem with those 'hard to solve' cases. There are one or two anomalies about the way some banks are dealing with it in a different sort of way to other banks," said Garnier.
Several businesses interviewed by Reuters have complained that their claims were rejected by banks without detailed explanation and that they were unable to appeal decisions.
Scott Cowan, a director of Veritas Treasury, which advises firms making claims, wants the FCA to ask banks to review cases where firms were offered no compensation or alternative products.
"There is a precedent for the FCA to call both banks and independent reviewers to account for their actions and decisions in cases where it suspects that claimants may have been treated unfairly," he said in a letter to Guto Bebb, chairman of the parliamentary group.
The FCA said it is satisfied the vast majority of businesses allowed into the scheme are happy with their compensation.
(Reporting by Matt Scuffham)
