Member Article

Bank compensation scheme treated small firms unfairly

A report by MPs has revealed that a number of firms have been mis-sold financial products by banks and have been consequently treated unfairly by a compensation scheme.

The compensation was for firms mis-sold interest rate hedging products.

The report said that the “redress must be fair and reasonable”, and that “redress should aim to put customers back in the position they would have been in had the breach of regulatory requirements not occurred.”

The problem is that this statement is open to interpretation by the banks conducting the review and so the outcome rests primarily on the judgement of the bank on a case by case basis.

Chairman of the Treasury Committee, Andrew Tyrie MP, said: Many small businesses have been badly hit by the complex terms of the IRHPs offered by their bank.

“A significant number of those firms who were mis-sold these hedging products feel that, having been ripped off in the first place, they have now been treated unfairly again by the FCA’s IRHP redress scheme.

“It is far from clear that the FCA’s scheme has delivered fair and reasonable redress to all the businesses affected.

“The FCA needs to do much more to demonstrate that this process is credible and has not unduly favoured the banks.

“As part of this work, the FCA should collect the information necessary to establish whether there are systemic failures in the review.

“This would benefit from independent oversight. It should publish its findings. “Greater transparency is crucial in order to ensure that those SMEs mis-sold these products receive – and are seen to receive – appropriate redress.

“The Financial Services Act provides for the Treasury to require for this type of work to be done. But hopefully this won’t be necessary.”

It has been recommended that an independent body should overview the cases and provide greater transparency.

The MPs also called on the FCA to justify the introduction of a £10m cap on the value of the interest rate hedging products a decision which has meant a 3rd of firms cannot participate.

This was posted in Bdaily's Members' News section by Sophia Taha .