FCA deals failing to reap redress as banks fight claims

Deals brokered with major banking groups over the mis-selling of interest rate swap products are failing to generate redress for clients as banks are fighting compensation claims in court, according to a law firm acting for investors in a number of legal battles.

Jon Green, senior associate at law firm Clarke Willmott, said that based on his experience of a number of claims that his firm is acting in and that he has knowledge of, banks have not yet paid out any compensation to small businesses.

Mr Green’s firm is acting for clients in a key case against Royal Bank of Scotland being heard at the Court of Appeal in mid-October. The Financial Conduct Authority has written to both parties regarding its intention to make a submission to the court to offer clarity on its regulatory requirements.

The wrangling comes despite high street banks setting aside millions in provision following a Financial Services Authority pilot review, the results of which were published in January and revealed that up to 90 per cent of 173 sales constituted mis-selling.

Following the review, four major high street banks agreed with the regulator to undertake a full review of past sales and to compensate customers.

Barclays has increased its total provision for compensation to £850m, while Royal Bank of Scotland and Lloyds Banking Group bumped their respective provisions to £700m and £610m. HSBC is thought to have set aside around £430m.

The FSA said that the probe would be extended to cover other banks and building societies, with total provision likely to reach anywhere up to £10bn according to analysts.

Speaking to FTAdviser, Mr Green said: “The headlines that came out as a result of the publication of the FSA’s pilot findings report made it sound that anyone sold one of these products was entitled to redress and that redress process would take place quickly.

“This is not what has happened in practice. None of my clients subject to the review process have seen any progress with their claims and I am unaware of any offer of settlement being made on any other case.”

In December 2012, a month before the FSA review findings were published, the High Court found against Mr Green’s clients, Lancashire hotelier Paul Rowley and his business partner John Green, in a test case involving allegations RBS mis-sold an interest rate swap in 2005.

Clarke Willmott’s Mr Green said the explanation in the judgement was that there was sufficient explanation of the costs and risks in the original sale.

He said: “The appeal in this case raises two key issues - whether the statutory duty of compliance with the Financial Services Authority’s conduct of business rules... gave rise to a duty concurrently owed to the bank’s clients.”

“If so, for the purposes of complying [the rules] what was required from the bank as regards the extent of the risk warning it should have provided to its clients in relation to the break costs of the swap product.”