By Huw Jones
LONDON (Reuters) – Lawmakers are pursuing a judicial review of a decision not to widen a British redress scheme for businesses that were missold interest rate ‘hedging’ products, saying that this had allowed banks to reduce compensation payouts by 10 billion pounds.
Thousands of small businesses received 2.2 billion pounds ($3 billion) from nine banks, including HSBC, Barclays, Lloyds and Royal Bank of Scotland under the redress scheme, which was set up nearly a decade ago for products missold from 2001.
But an independent review said last month that excluding about 10,000 sales of the products, which were supposed to protect businesses from rising interest rates, from the scheme, a third of the total, was an “inadequate regulatory response”.
When rates fell, companies who bought the products found they had to pay crippling extra charges, often running to tens of thousands of pounds.
The review said that the FCA, after representations from some banks, agreed to exclude “sophisticated” customers, defined as businesses having two of three characteristics of a turnover of more than 6.5 million pounds, a balance sheet of more than 3.26 million pounds or more than 50 employees, from the scheme.
There was no explanation why the change was agreed by the regulator, the review said.
“The regulator cannot produce any evidence to support the decision or even remember what the reasons were for excluding so many victims. Meanwhile they cleared the way for banks to knock up to 10 billion pounds off their compensation bill,” Kevin Hollinrake, who co-chairs the All-Party Parliamentary Group on fair business banking said in a statement on Monday.
The group said that it had called on FCA CEO Nikhil Rathi to reconsider after the watchdog said in December that further action would not be appropriate or proportionate.
It said it was now filing an application for a judicial review, which refers to a judge reviewing the legitimacy of decisions taken by a public body.
An spokesperson for the FCA said it was a very different organisation from the one that existed when the products were sold and when the voluntary redress scheme was established.
“We have accepted many of the recommendations from the independent review,” the spokesperson added. ($1 = 0.7311 pounds)
(Reporting by Huw Jones; Editing by Alexander Smith)
