We take a look at the FSA report on the Interest Rate Swap scandal and the criticisms that have been levelled at it
The FSA has announced that 90% of the Interest Rate Swap cases it investigated in its initial 173 case-filed review had been mis-sold. Consequently, the banks will now be required to carry out full reviews and to compensate customers. RBS, one of the Big Four, immediately put out an announcement saying “RBS is committed to treating its customers fairly and to delivering on its obligations under its Undertaking to the FSA.”
Can’t get fairer than that. Or so it seems – until you look at the fine print of the Scheme.
Because what was studiously avoided in the FSA press statement was that interest rate swaps valued at more than £10m will be excluded from review.
The FSA had said that in order for a business to come within the ambit of the review, it must be considered a ‘small business’. Using the definition of a small business from the Companies Act, any business with a turnover of less than £6.5m, a balance sheet of less than £3.26m and less than 50 employees will be considered a small company. However, this could easily exclude many farms who may employ more than 50 people in any one year on a seasonal basis and, given the amount of land holdings many farms have, the balance sheet could be in excess of the balance sheet limit. Yet in many instances, the farm is, for all practical purposes, a small business.
As a result, the FSA has abandoned these tests and simply set a £10m cap on the value of the IRS. A spokesman for the FSA said that this cap had been set to take into account the likes of farms and small care homes that would then fall outside the review.
But if that was the case, why was this new cap so carefully hidden amongst the fine detail, where the devil so often lurks? And why was it not made public in the press statement?
Rich Eldridge, Head of Finance at Manches, has been quoted in The Independent as stating
“Many people suspected the potential exposure of the banks was too large for taxpayer-owned banks. It seems the FSA has bowed to the pressure from the banks by agreeing to exclude the largest claims. I have lost all faith in the process. A process in which the FSA bows to the strength of the banks will not deliver a fair result for borrowers. It is particularly concerning that the FSA has not been upfront about changing the review to exclude the larger claims.”
Has the FSA bowed to pressure? Will this impact on others who will fall into the review scheme? Does the criticism that the review system leaves the FSA in the position of being ‘judge and jury’ have some foundation?
Worrying as this announcement may seem, it should be pointed out that this cap only excludes cases from the FSA-led review. It does not stop someone who has lost out from bringing a civil claim in the courts for the mis-selling of the policy.
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