LONDON (Reuters) – Britain’s financial watchdog was accused in London’s High Court on Tuesday of unlawfully failing to help thousands of people excluded from a 2.2 billion-pound ($2.8 billion) bank redress scheme relating to interest rate hedging products.
The Financial Conduct Authority (FCA) faces legal action over its response to an independent review of the scheme, under which nine banks – including Barclays, HSBC and Lloyds – agreed to pay compensation.
Lawyers representing Britain’s All-Party Parliamentary Group on Fair Business Banking say thousands were excluded from the scheme agreed by the FCA’s predecessor in 2013, and many had their businesses and livelihoods destroyed as a result.
Banks sold the products, which were designed as a protection against rising interest rates, to thousands of small businesses. But when rates fell after the global financial crisis, customers had to pay extra charges of up to tens of thousands of pounds.
Under the redress scheme, banks agreed to pay compensation to those who were mis-sold the products between 2001 and 2011.
But thousands of customers were left out on the basis of a “sophistication test”, which excluded those with a turnover of more than 6.5 million pounds and over 50 employees.
An independent review commissioned by the FCA concluded in 2021 that those sales were excluded “without proper justification”, but the FCA decided not to take further action.
The All-Party Parliamentary Group says that was unlawful and its lawyer Thomas Roe said there was no objective justification for the original scheme having “shut out thousands of people”.
The FCA argues the independent review expressly did not call for the watchdog to seek further redress from the banks.
Its lawyer Richard Coleman also said the FCA was entitled to disagree with the findings of the independent review.
The hearing continues on Wednesday, with a ruling expected at a later date.
(Reporting by Sam Tobin; Editing by Alexander Smith)
