Judicial review to force FCA to make banks pay for financial mis-selling
The mis-selling of interest rate hedging products (IRHPs) by banks to business customers is one of the UK’s largest ever financial scandals. Livelihoods were lost, businesses built up over many years were destroyed and lives were ruined.
The All Party Parliamentary Group on Fair Business Banking (APPG), a cross-party group of MPs and Peers co-chaired by Kevin Hollinrake MP - represented by Hausfeld - intends to bring a judicial review against the Financial Conduct Authority (FCA), requiring the FCA to give bank customers access to IRHP compensation of c. £1 billion.
The IRHP redress scheme and the Swift Review
In 2013, the FCA’s predecessor the Financial Services Authority (FSA) entered into agreements with nine banks, which resulted in over £2.2 billion in compensation being paid to customers who had been mis-sold IRHPs, over the period from 2001-2011 (the Scheme).
However, over 10,000 sales of IRHPs to approximately 5,000 customers were excluded from the Scheme by the FSA, on the basis of a “sophistication” test, which sought to categorise and exclude victims of IRHP mis-selling based on inflexible and arbitrary criteria. This exclusion affected around one third of the sales, and thus may have prevented customers accessing over £1 billion of compensation.
Complaints to the FCA, including by the APPG, led to the FCA commissioning John Swift QC to conduct an independent review of the Scheme. He and his team worked for over two years, at a cost in excess of £7 million. His comprehensive lessons learned review (the Review) was published on 14 December 2021.
The Review concluded - in clear and authoritative terms - that the FSA had been wrong to exclude these sales from the Scheme and had acted unlawfully in a number of respects when doing so.
The Response and the judicial review
The FCA issued a response to the Review, published on the same day (the Response). It stated that it “does not consider that the FSA was wrong to limit the scope of the redress scheme to less sophisticated customers and has concluded that it would not be appropriate or proportionate to take further action. Accordingly, the FCA will not seek to use its powers to require any further redress to be paid to IRHP customers.”
The APPG considers that the Response fails to address the conclusions reached in the Review in several material respects, and that its decision not to seek to use its powers to require any further redress to be paid to the excluded IRHP customers is flawed and unlawful.
On 14 January 2022, the APPG wrote to the FCA asking it to reconsider the Response. The FCA responded on 31 January 2022 declining to do so.
The APPG believes that it is unacceptable that so many bank customers who were the victims of mis-selling have been denied compensation. This denial affects both ‘sophisticated’ customers excluded from the Scheme and also customers of banks other than the nine within the Scheme.
Whilst the APPG has supported subsequent initiatives such as the Business Banking Resolution Service (BBRS), the banks participating in the BBRS are refusing to allow some customers excluded from the Scheme to submit claims. The APPG therefore intends to apply for a judicial review of the Response.
On 8 February 2022, Hausfeld on behalf of the APPG sent a letter before claim to the FCA pursuant to the Pre-Action Protocol for Judicial Review. Ned Beale, Simon Bishop and Rachel Baillie of Hausfeld are acting, instructing Thomas Roe QC (3 Hare Court) and Anna Lintner (39 Essex).
The deadline for issuing the judicial review is 13 March 2022.
The APPG’s CrowdJustice page
More info on APPG
The Review by John Swift QC
The Response by the FCA
Contact details for media enquiries
Silvia Van den Bruel