Banks’ swap-for-swap deals anger campaigners

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By Ian Fraser

Published: The Times

Date: 29 September 2014

test1_15Small businesses, MPs and campaigners are calling for an inquiry into the Financial Conduct Authority’s handling of banks’ mis-selling of complex financial products to small businesses.

Guto Bebb, a Conservative MP and chairman of an all-party parliamentary group on the issue, said: “There is no doubt in my mind that there needs to be a probe into the FCA’s overseeing of the review process. It’s clear there is a great disparity between the stated intentions of the review scheme – “to put the customer back in the same position that they would have been if they had not bought the swap” – and the reality.

“I will be calling for a motion in the House of Commons in late October to express dissatisfaction with the scheme and discuss and examine the best way that a probe can be quickly achieved.”

The FCA’s mis-selling review began in May last year after the regulator identified “serious failings” in the way in which high street banks had sold interest rate swaps to more than 29,000 companies. The subsequent “redress scheme” for victims has been criticised for allowing banks to substitute one hedging product with another — “swaps for swaps” — and for providing too little recompense.

There has been a marked increase in these arrangements, with Royal Bank of Scotland and Barclays accused of taking a harder line with customers than HSBC and Lloyds. Swap-for-swap deals have enabled banks to save millions of pounds by offering businesses alternative hedging products, which are rarely in their interests, instead of cash settlements.

In the year to April 30, these represented just 11 per cent of outcomes. But since 1 May they have accounted for 46% of outcomes. The vast majority of these have come from RBS and Barclays. Mr Bebb said: “We’re particularly concerned about the huge rise in swap-for-swap deals, as well as the handling of consequential loss claims.”

Businesses were advised that the swaps would protect them from interest rate rises, but when the cost of borrowing fell to 0.5 per cent in 2009, the products became cripplingly expensive. Outcomes for companies in the FCA scheme have deteriorated since the end of April, when HSBC and Lloyds completed their portions of the review.

FCA data suggest that Barclays and RBS, the only two large banks left in the review since May, have been offering a far higher proportion of “swap-for-swap” settlements than Lloyds and HSBC. Bully Banks, the campaign group, has accused RBS and Barclays of “playing hardball”.

An FCA spokesman said: “The offers on the table are fair, and the process returns small companies to the position they would have been in had they never been the victim of a mis-sale. The more complex alternative product decisions take longer and, rightly, attract greater scrutiny from the independent reviewers. As a result, it’s natural there would be a higher proportion of these offers towards the end of the process.”

RBS said that it had “worked in line with the FCA agreed process throughout to ensure that all customers mis-sold these products get fair and reasonable redress”. Barclays said that it had made “ample provision to help businesses get their appropriate redress”.

An edited version of this article was published in The Times on 29 September 2014

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