The FCA must make banks compensate victims of financial mis-selling

by All Party Parliamentary Group on Fair Business Banking

The FCA must make banks compensate victims of financial mis-selling

by All Party Parliamentary Group on Fair Business Banking
All Party Parliamentary Group on Fair Business Banking
Case Owner
The APPG is a cross-party group of MPs and Peers co-chaired by Kevin Hollinrake MP.
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All Party Parliamentary Group on Fair Business Banking
Case Owner
The APPG is a cross-party group of MPs and Peers co-chaired by Kevin Hollinrake MP.
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Latest: June 23, 2022

Update on our case

On 15 June 2022 the APPG filed and served a reply to the FCA’s summary grounds of resistance. The reply addressed the FCA’s arguments that the APPG does not have sufficient interest in th…

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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 APPG was founded in response to this scandal.  

The All Party Parliamentary Group on Fair Business Banking (APPG), a cross-party group of MPs and Peers co-chaired by Kevin Hollinrake MP, intends to bring a judicial review against the Financial Conduct Authority (FCA), after it refused to act following the outcome of the Swift Review published in December 2021. 

If the judicial review is successful, the FCA may be required to establish a scheme offering redress estimated in excess of £1 billion to thousands of victims of mis-selling, the vast majority of whom have no other way to obtain compensation.

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 by those banks 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. 

Proposed action

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 Rachael 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 FCA has instructed Dentons UK and Middle East LLP and Richard Coleman QC to respond to the claim. The response to the letter before claim dated 22 February 2022 is here.

Since those formal pre-action letters were sent, the following further correspondence has been exchanged which is focussed on certain issues in the proceedings, including the limitation period for the claim, disclosure of documents, interested parties and the FCA’s position regarding its own costs:

Fundraising

The judicial review will require significant investment of time by the APPG and its legal team. Whilst the legal team have all committed to offer at least 75% of their time on a contingent basis (limited to any costs that may be recovered from the FCA), the level of funding required to pursue the judicial review is estimated to be much higher because of additional and non-legal costs such as insurance fees.  

The APPG invites donations towards an initial target of £100,000 and stretch target of £150,000 to fund 25% of the legal team’s costs and additional disbursements.  

If the £100,000 initial target is achieved, the APPG will commence the judicial review by 13 March 2022 and pursue it to final judgment.  Any surplus beyond £150,000 will be held to fund further legal fees (always subject to the team not charging more than 25% of their time) and disbursements, and ultimately if not required, returned to donors. 

 


 

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Update 2

All Party Parliamentary Group on Fair Business Banking

June 23, 2022

Update on our case

On 15 June 2022 the APPG filed and served a reply to the FCA’s summary grounds of resistance. The reply addressed the FCA’s arguments that the APPG does not have sufficient interest in the claim to bring it, that claim is time barred, that the claim has no merit, and that the FCA would make the same decision again if the FCA was directed to reconsider it. The reply also responded to the FCA’s arguments that a costs capping order should not be made and that an individual from the APPG should be joined to the claim. A copy of the reply is available here.

The parties now await the Court’s decision, having regard to the documents that have been filed, on whether the APPG has permission to bring the claim.

Update 1

All Party Parliamentary Group on Fair Business Banking

June 8, 2022

Latest update on our case

Judicial review proceedings filed

On 21 March 2022, the APPG filed judicial review proceedings in the High Court (Administrative Division) challenging the FCA’s decision not to act on John Swift QC’s findings that the IRHP Redress Scheme adopted flawed eligibility criteria, excluding a third of customers who were deemed to be ‘sophisticated’. The claim explains that the FCA has not disclosed key documents that were relevant to its decision making and asks that the Court order further disclosure if the Court grants the APPG permission to pursue its claim.

The APPG has also asked the Court to make a costs capping order (which would prevent or limit the costs the APPG would need to pay if the claim was not successful) because the claim is being brought in the public interest and is only able to proceed through CrowdJustice fundraising.

A copy of the Claim Form, Statement of Facts and Grounds and Claimant’s Estimated Costs is available here.

 The next step is for the FCA to file its response within 21 days, and the Court will then make its decision on whether the APPG has permission to proceed with the claim.

Court orders disclosure and amendments to the claim

After the APPG filed its claim, it received correspondence from the FCA’s lawyers at Dentons offering to provide a copy of the board paper upon which it says the FCA’s decision was based under certain confidentiality restrictions. Once it received the board paper, the APPG needed to amend its claim to take into account additional information. However, the board paper indicates that further relevant information had not been disclosed. The APPG and FCA therefore agreed an amended timetable, which required the FCA to disclose further relevant documents by 12 April 2022, the APPG to file an amended claim by 6 May 2022, and the FCA to file its response to the amended claim by 27 May 2022.

The parties’ correspondence was provided to the Court, and the Court made the Order on 26 April 2022.   A copy of the Order is here.  

Amended claim filed, the FCA withholds further information and refuses to publish it

The FCA provided further information to the APPG as required by the Court’s order on 12 and 14 April 2022. This information showed that key decisions were made in response to John Swift QC’s findings at earlier stages in 2021, but the documents relating to those decisions were not disclosed.

The APPG has amended its claim based on the information it has received so far. The amended claim was filed on 6 May 2022. A copy is available here. While the APPG considers that the FCA has not provided all of the information it is required to, it is concerned that postponing filing the amended claim will cause even more significant delays in the proceeding (in addition to the delays already caused by the board paper and other information not being disclosed). 

The APPG also notified the FCA that it wants to publish the documents that have been disclosed, because there is significant public interest in the proceedings and it is important to be transparent. However, the FCA has argued that the documents must be kept confidential because some information is confidential under s 348 of the Financial Services and Markets Act 2000 (although it refuses to identify what that information is) and under civil procedure rules which restrict the use of documents. The APPG believes that these rules do not apply, and should not be relied upon by the FCA in these proceedings, which are being brought in the public interest and is continuing to correspond with the FCA about this.

An article in the Mail on Sunday about the FCA’s refusal to share documents is here.

FCA serves its Defence, the APPG indicates it will serve Reply

On 27 May 2022, the FCA served its Acknowledgment of Service, attaching its Summary Grounds of Defence.  A copy is here.

The APPG has notified the Court that it intends to serve a Reply by 10 June 2022. 

Once the Reply has been filed, we expect the Court to decide whether the claim has permission to proceed.  If permission is given, we expect a directions hearing to take place.   If permission is denied, we expect renew the application for permission at an oral hearing.  

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