Steven Friel berates the FSA for its poor handling of swap mis-selling and warns SMEs that waiting for the FSA scheme could be an expensive mistake.
In my post on 21 August 2012, I discussed the FSA redress scheme for victims of interest rate swap mis-selling. In that post, I congratulated the FSA for "finally getting to grips with this issue". I now wish to retract those words. More than five months on, and it seem fairly clear that the FSA, and indeed the banks themselves, are far from properly getting to grips with the issue.
On 31 January 2013, the FSA published its findings following a pilot study into mis-selling cases at Barclays, HSBC, Lloyds and RBS. The pilot has confirmed the FSA’s initial findings that there was significant mis-selling of interest rate swaps. Having looked at 173 sales to ‘non-sophisticated’ customers from across the four banks, the FSA found that over 90% did not comply with one or more of the FSA's own regulatory requirements.
Not a great surprise.
So, does that mean that the many small and medium sized enterprises who have suffered as a result of the mis-selling can now expect swift redress? No. The FSA scheme was first announced in the summer of 2012. Many months have gone by and not a single claimant has been offered redress under the scheme. We now understand that it will be a further six to 12 months. In the meantime, thousands of SMEs continue to be forced to service their toxic swaps. For many, they simply will not be able to survive.
Statute of limitations
A further concern about the delays is that, while claimants wait for the FSA redress scheme to play out, the six year limitation period prescribed in English law will run out. This means that many claimants who object to what is offered to them in the redress scheme (if anything) will find that they are time barred from commencing court litigation. In order words, waiting around for the FSA scheme to finalise could be an expensive mistake for many SMEs.
I have further concerns about the FSA's position. The first is that the FSA is going to great lengths to tell claimants that they "do not need to use a claim management company because the process is straightforward". I can see why the Banks and the FSA are keen to put that message out there. They want to avoid a PPI-style industry of claims managers. However, the PPI situation was very different from the interest rate swap issue. As to the latter, the whole point is that customers did not understand what they were getting themselves into. If these so-called "non-sophisticated customers" did not understand the product in the first place, how can they be expected to understand the alternative that might now be offered to them? My fear is that by telling claimants that everything is straightforward and encouraging them to steer clear of claims management companies, the FSA will also discourage customers from seeking independent legal advice. In some situations, legal advice may not be required, but in many case it will. Claimants are in danger of being short changed the second time around.
Role of independent reviewers
A further concern about the FSA scheme is the emphasis being placed on the role of the independent reviewers. Claimants are supposed to take comfort from the fact that the redress they might be offered has been reviewed independently. Again, it may be the case that some claimants will be offered precisely what they should be offered. But the fear is that many claimants will not. Can those claimants really expect the independent reviewer to "fight their corner"?
In short, I fear that the FSA redress scheme is a case of not enough, and not soon enough.