‘A landmark High Court ruling has raised the possibility that thousands of businesses that were mis-sold interest rate swaps may be able to sue their bank, despite the outcome of the financial regulator’s compensation scheme. The case relates to a dispute between holiday park operator Suremime and Barclays, which mis-sold the company an interest rate swap product in 2008.
Judge Havelock-Allan accepted an argument from Suremime that the issue of whether a duty of care to customers arose from the Financial Conduct Authority’s redress scheme should be settled at trial. Barclays had argued that its duty of care lay only with the regulator. The decision means that companies that think the FCA scheme failed to provide a reasonable level of compensation can argue that their bank failed in its duty of care to them, even if the mis-selling predates the six-year limit on legal challenges.
Source: The Times‘
There’s always two ways of looking at anything and that applies to this ruling. There is no doubt that the FCA scheme failed to provide redress to a large number of companies, many SMEs, who were mis-sold interest rate hedging products (IRHPs) and suffered huge losses as a result. (As an aside some companies did actually benefit from the FCA redress scheme when they were not really mis-sold anything but still received some form of redress, but that was far less common). So hopefully this latest ruling will finally help those SMEs who have lost small fortunes having been mis-sold IRHPs finally receive the financial redress they fully deserve.
The flipside is the effect this will have on the banks. Without wishing to feel sorry for the banks for the appalling manner in which a number of banks behaved, both in mis-selling IRHPs in the first place and then in minimising payments under the FCA redress scheme, they have already paid out some £2 billion in respect of mis-sold IRHPs and this ruling could open a floodgate of claims resulting in the £2 billion already paid being only the tip of an enormous iceberg. Whilst we’re not economists, there must be a fear that this could precipitate another banking crisis, something the UK economy can ill afford as it delicately meanders its way back to sustained growth.
Part of the problem arises from consequential loss claims that result from successfully claiming an IRHP was mis-sold. Consequential loss claims can result in the banks paying out much more than they received from mis-sold IRHPs in the first place. Whilst any SME that was mis-sold an IRHP ought to be able to claim from losses incurred that resulted directly from the mis-sold IRHP, the whole FCA redress scheme has not been fair in that many SMEs received no redress at all while some received more than is perhaps equitable. One can only wonder if this might never have become an issue had the FCA’s original agreement with the banks to review cases of mis-selling been more SME friendly in the first place. Sadly this is no fairy tale in that no one will live happily ever after.