The FCA’s review into the sale of interest rate hedging products by Banks has been ongoing since June 2012. Following a pilot phase, the full review started in May 2013 and over 17,000 businesses have been through the process. Most customers reviewed should now be at the stage where they have been offered basic redress (if any) by their Bank and are contemplating their options around consequential loss. One might have anticipated, therefore, that the review process was coming to an end.
In the Treasury Committee’s report ‘Conduct and Competition in SME Lending’ (“Report”) it was suggested the FCA conduct a review to establish whether the redress scheme (“the Scheme”) it designed had failed the claimants it was designed to protect. The Committee queried whether complaints that the process fell short of delivering fair and reasonable redress were ‘isolated exceptions’ or whether there was a ‘systemic problem’ with the review.
The Treasury Committee has now published the response from the FCA to the Report. The response explains the FCA’s reasoning behind the finer detail of the Scheme and addresses suggestions that it had given into pressure from Banks on how the parameters of the Scheme should be set. It specifically deals with questions raised on the sophistication test relating to the cap of £10 million on claims. Contrary to the suggestion of numerous media reports, the response does not simply accept that the Scheme is flawed and makes the clear point that customers that have not received the result they hoped for still have the option to pursue their claims in Court should they wish to do so.
Whilst the FCA accepted there may be ‘potential merit’ in a review of the Scheme, it also suggests that any such review would be premature whilst judicial reviews of the role of the independent reviewers is ongoing. In R (on the application of Holmcroft Properties Ltd) v KPMG LLP, a case where a customer has sought a judicial review of the decisions of KPMG LLP as an independent reviewer (and subsequent cases against other independent reviewers), the Court will consider whether the independent reviewer owes public law duties to private individual customers and whether such decisions can be subject to judicial review. These reviews will have significant implications for any review of the Scheme and will necessarily impact on the FCA’s response to the concerns raised by the Treasury Committee.
It is not clear whether the FCA’s decision to await the outcome of the Holmcroft case will be sufficient. Commenting on the response, Right Hon. Andrew Tyrie MP, Chairman of the Treasury Committee, said “It is welcome that the FCA now recognises the merit of conducting a review of how the redress scheme has been operating. It should get on with this. Restoration of confidence in the scheme is essential”.
The full FCA response (which also addressed the ongoing review of RBS GRG, the need to address the lack of competition in the banking sector and widening the reach of the Financial Ombudsman Service) can be viewed here.