June 27th, 2014 (minor edits Oct 3rd)
Its review of the interest rate swaps that were sold on an industrial scale by banks to gullible small business customers, especially in 2004-08, has fallen short on a number of fronts. (for more on the fraudulent / deceptive means the banks employed to foist these products on their business customers, see my “Swaps Film” blog from Wednesday.)
The review only came into being as a result of sustained and pressure from: (1) small firms that saw their finances decimated after being persuaded and/or bullied into buying the swaps by unscrupulous banks; (2) the campaign group Bully Banks; (3) politicians (notably Conservative MP for Aberconwy, Guto Bebb); and (4) the media which highlighted numerous cases where long-established small and medium sized firms were destroyed as a result of the swaps they had been “missold” (e.g. in articles by the Daily Telegraph’s banking editor, Harry Wilson).
Faced with this onslaught the Financial Services Authority, the FCA’s predecessor, which had previously been in denial, finally caved in and grudgingly resolved to introduce a ‘redress’ scheme that it cobbled together with the UK’s four biggest mis-sellers of interest rate swaps to SMEs – RBS, Lloyds Banking Group, Barclays and HSBC.
But the scheme was badly flawed from the start. This was largely because it put the banks in the driving seat, even though they were responsible for effectively screwing scores of thousands of businesses customers after forcing them to take out products they did not need nor want (for the sole reason that the products were exceedingly profitable for the banks). Yet the FCA outsourced the entire “review”, letting the banks decide whether or not they had swindled their own SME customers and leaving them free to decide which complainants were ‘unsophisticated’ enough to be merit any compensation (albeit with intrinsically conflicted “Big Four” firms of accountants acting as “independent” reviewers under Section 166 of the Financial Services and Markets Act 2000)
In September 2013, the review confirmed that RBS was the biggest mis-seller of swaps, with a total 10,528 cases of mis-selling recognised by the review team.
Now the Manchester-based law firm Berg has highlighted some significant weaknesses in the FCA’s “review”. In a piece on the Berg website, solicitor Calvin Chapman writes:-
Since 2012 the FSA and now the FCA has found that level of regulatory breaches during the sales of IRHP is massive. By 30th May 2014 they had found 92% of all sales had one or more regulatory breach. 92%! That means that the banks overall simply ignored regulation.
What has the FCA done about this? One would naturally expect the sales staff to be severely disciplined, directors and other executives form the banks disciplined and the banks themselves fined and potentially have their ability to trade such products revoked where abuse was rampant. That is what one would expect.
Instead, the FSA, as it then was, simply ordered the banks to refund the cashflows of the IRHPs and offer compensation for other consequential losses. Not once has anybody, or any bank, been disciplined for this astonishing failure that has brought many SMEs to their knees, and made others insolvent. And not one person has been prosecuted for fraud, nor has a bank faced any criminal or regulatory proceedings.
Further to that, the banks have now decided that they will not pay ANY consequential losses in the FCA review into IRHPs. Not a single person Berg has spoken to has been offered more than a three digit consequential loss claim settlement, and those that got the two or three digit refunds are just refunds of bank fees incurred as a result of the cashflows.
On top of this, the FSA agreed to exclude people from the review at the behest of the banks by imposing an arbitrary £10 million test, which has seen an additional 5,000 SMEs removed from the review process. What has the FCA done to correct the refusal to pay consequential losses? Again, nothing. They have just said that the independent reviewer has agreed everything. But has a single person seen what the banks have been passing to the “independent” reviewers? No, the banks and the FCA will not let anyone have oversight of this.
Are we seriously suggesting that not a single body suffered losses as a result of IRHPs during the 2009 to 2014 period? Not one? Or is it simply a case that the FCA has no spine and refuses to do its job?
Om 19 June 2013, the Parliamentary Commission on Banking Standards produced a report saying the whole Financial Services and Markets Act scheme should be removed. The government responded by saying it agreed. What has happened since then? A suggested “council” with absolutely no powers has been recommended to overview banks’ self-investigated summaries of their positions, with no right of investigation by the council, nor any powers to discipline banks. As such, to date, the government has done nothing.
The FCA’s punishment of the disgusting things that Wonga has done to the most vulnerable people in societ [including chasing debts and adding charges through the use of fake law firms], is symptomatic of the overall failure by the FCA to demonstrate and evidence actual policing of banks that since 2006 have caused hundreds of billions of pounds of losses to SMEs and individuals. Those failures continue, and the review into the sale of IRHPs, and specifically the banks’ refusals to pay consequential losses shows how powerless individuals and SMEs are against the growing demands of banks to replace their lost money.