Regulation  

Court grants judicial review over redress scheme payouts

Court grants judicial review over redress scheme payouts

Payouts to small businesses and others that purchased interest rate swap products, which the regulator found were routinely mis-sold, are to be put under the spotlight after a judge granted a judicial review application over the level of payout to one care home victim.

Judge Kenneth Parker said law firm Mishcon de Reya, which is acting on behalf of nursing home operator Holmcroft Properties, could press ahead with its claim over the compensation process operated by Barclays and undertaken by independent reviewer KPMG.

Holmcroft argues it is owed more in compensation than the £550,000 it has been offered after its claim for additional ‘consequential losses’ was refused. It’s original ‘borrowing’ related to the swap was around £5m, but the law firm would not confirm the losses being claimed.

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According information on the Financial Conduct Authority’s website, ‘consequential loss’ claims can be submitted where customers believe their ‘lost opportunity’ costs are above the 8 per cent ‘simple interest’ typically added to payouts.

It states 3,620 customers have submitted bespoke claims for additional losses, of which 2,294 have been assessed. Banks have agreed to pay redress above 8 per cent in 1,185 cases, with only 232 including additional compensation of more than £10,000.

In total, 17,000 redress determinations have been issued to customers including 14,000 offering compensation, with 11,000 offers having already been accepted. Banks are set to pay out £1.8bn on these, of which £365m covers consequential losses.

Just £8m of this figure is accounted for by payouts above 8 per cent.

Speaking to FTAdviser, James Oldnall, partner at Mishcon de Reya, said the redress “process was not designed to be fair”. He added that there appears to be a “distinction between what the FCA is saying publicly and what it is saying privately.”

Mr Oldnall said: “KPMG’s argument, also echoed by Barclays and the FCA, was that its role was a matter of private contract and as such it was not subject to procedural fairness.

“The Judge’s remarks today are a strong indication that KPMG’s role, and indeed the bank’s process, is not solely a private contractual matter but has an important public function and must be fair.

“In terms of the implications, this should certainly lead to banks and independent reviewers prioritising fairness. From the perspective of our client, it means that we now have the opportunity to argue a case for appropriate compensation that is commensurate to his loss.”

In June 2012, previous regulator the then Financial Services Authority announced that it had found serious failings in the sale of interest rate hedging products, following which nine banking groups agreed to conduct an initial review.

One year later a pilot review of sales of interest rate hedging products by major banking groups to small businesses confirmed initial findings of mis-selling in this area, with over 90 per cent of 173 sales not complying with at least one regulatory requirement.

The nine banks which have since agreed to undertake full reviews of past sales are Allied Irish Bank (UK), Bank of Ireland, Barclays, Clydesdale & Yorkshire Banks, Co-operative Bank, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander UK.