The FCA must make banks compensate victims of financial mis-selling
The FCA must make banks compensate victims of financial mis-selling
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Latest: Dec. 19, 2023
IRHP Judicial Review against the FCA: APPG replies to the FCA’s defence
The APPG has filed its Reply to the FCA’s Detailed Grounds of Defence, and the evidence the FCA filed along with it. A copy of the APPG’s Reply is here.
With its defence, the FCA pro…
Read moreThe 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, has brought a judicial review against the Financial Conduct Authority (FCA), after it refused to act following the outcome of the independent Swift Review published in December 2021. On 29 June 2023, at a hearing before Mr Justice Fordham, the High Court granted the APPG permission to bring the judicial review, meaning that the case will now proceed to a full hearing.
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 of around £8 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.
Legal 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 supported subsequent initiatives such as the Business Banking Resolution Service (BBRS), the banks participating in the BBRS refused to allow some customers excluded from the Scheme to submit claims.
On 11 March 2022, the APPG therefore applied for a judicial review of the Response.
Copies of the claim documents filed are available here:
At a first hearing of the claim on 29 June 2023, the High Court granted the APPG permission to judicially review the FCA's decision on both grounds set out in its claim: (1) that the FCA's decision is irrational and therefore unlawful; and (2) that the FCA failed to consult with the excluded customers who were affected before making its decision.
The Court also found that the APPG had sufficient standing to bring the case, because it has a particular interest in promoting fair outcomes of the people affected by IRHP mis-selling and in advocating for the proper regulation of business banking more generally.
The Court's judgment is available here and separate judgment regarding costs is here.
The Defendant must file any detailed grounds of defence and supporting evidence by 29 September 2023. A date for the full hearing will be set shortly thereafter.
The legal teams
The APPG is represented by Ned Beale, Simon Bishop and Rachael Baillie of Hausfeld & Co LLP, instructing Thomas Roe KC (3 Hare Court) and Anna Lintner (39 Essex).
The FCA has instructed Dentons UK and Middle East LLP, Richard Coleman KC (Fountain Court) and Simon Pritchard (Blackstone Chambers).
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.
The APPG met its initial target of £100,000 to fund 25% of the legal team’s costs and additional disbursements, such as court fees. However, the APPG requires further funding of £100,000, for two reasons.
First, the cost of the early stages of the litigation exceeded estimates, primarily because there was protracted correspondence between the legal teams in which the APPG sought to obtain disclosure of relevant documents from the FCA. The APPG was successful in obtaining key documents during these exchanges which enabled the APPG to file an amended claim with more relevant information about how and why the FCA made its decision. However, there is further work to do in relation to disclosure as many requests remain outstanding. The APPG considers it is of paramount importance to promote transparency and ensure that the FCA is in compliance with its legal duty of candour in the context of these proceedings.
Second, fundraising is required to meet the APPG's potential exposure to adverse costs. The APPG has no resources for these proceedings beyond those raised on CrowdJustice, and it therefore applied for a costs capping order to limit its potential liability to pay the FCA's costs, if the claim is unsuccessful. The High Court ordered that if either party to the proceedings is unsuccessful and ordered to pay costs, the costs will be capped at 40% of what the APPG is able to fundraise. Therefore, 40% of the funds raised to date and going forward will be held in reserve for this purpose. If the APPG is successful, those funds can be released to meet any of the APPG’s own outstanding costs. Any surplus will be returned to donors if it is not required (although it is unlikely that there will be a surplus)
The upshot of the above is that, of the c. £100,000 raised to date, £40,000 must now be held on account of possible adverse costs risks. The APPG is seeking to raise a further £100,000. If successful, that will enable costs and disbursements of up to £120,000 to be paid, with the balance of £80,000 being held to meet the APPG’s potential adverse costs liability.
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I'll share on FacebookAll Party Parliamentary Group on Fair Business Banking
Dec. 19, 2023
IRHP Judicial Review against the FCA: APPG replies to the FCA’s defence
The APPG has filed its Reply to the FCA’s Detailed Grounds of Defence, and the evidence the FCA filed along with it. A copy of the APPG’s Reply is here.
With its defence, the FCA provided approximately 2,300 pages of documentary evidence and witness evidence that it had previously refused to provide. As set out in the APPG’s reply, these documents show that the FCA had made its decision to reject the independent reviewer’s findings well in advance of the publication of its decision, and even before it received Mr Swift’s final report. The FCA’s decision flew in the face of Mr Swift’s findings, and also the findings of the FCA’s own Risk and Compliance Oversight division, which both concluded that the FCA was incorrect to exclude certain customers in the first place.
The APPG’s response also highlights that, despite receiving (and accepting) criticism from Mr Swift regarding its decision not to consult affected parties before excluding them from its IRHP Redress Scheme, it repeated this approach in relation to its decision to reject the findings of the Swift report without consultation.
The FCA is acting unlawfully in its decision not to accept the findings of its own reviewer and to repeat its mistakes in failing adequately to consider further redress or to consult affected people. It is crucial that it be held accountable to and by the public which it is required to protect.
Next steps
With the APPG’s response filed, the claim will now proceed towards a full trial, at which the APPG’s arguments will be heard in open court, which will take place in 2024.
The APPG’s judicial review challenge is only possible because of the tremendous backing given by supporters via CrowdJustice.
The APPG’s lawyers Hausfeld & Co. LLP and the barrister team instructed for the APPG are working on significantly reduced rates. The APPG relies entirely on its supporters’ generous support in its work on the judicial review, with funds raised used to meet its legal costs and other expenses. The process to trial will be intensive, but offers a unique opportunity to hold the FCA accountable.
All Party Parliamentary Group on Fair Business Banking
Nov. 29, 2023
We have won the battle – now help us win the war
The APPG’s legal battle to compel the FCA to act on the findings of its own lessons learned review and extend the IRHP redress scheme to the thousands of SME bank customers wrongly denied compensation is now in its second year.
In June, the APPG won a critical court battle by obtaining permission to proceed with the judicial review. Receiving permission is a hugely important step towards overall victory. It guarantees the FCA must fully present its case and face a full trial, which will take place in 2024.
The APPG was only able to begin the judicial review because of the tremendous backing given by supporters via CrowdJustice, who donated over £100,000 within a few weeks in 2022.
However, the APPG now faces an intense period of work responding to the FCA’s full defence and preparing for trial. The APPG wants to put its case as strongly as possible. It is therefore seeking to raise another £100,000 towards its costs of the litigation by the end of the year.
The APPG believes this financial support is vital and very worthwhile because of the importance of this case both for the IRHP victims and for the wider issues it raises as to the conduct and responsibility of the FCA and other regulators.
Recap
In response to the IRHP mis-selling scandal, the FSA (the FCA's predecessor) announced a redress scheme in 2012, which paid out over £2bn in compensation. However, around one third of complaints relating to over 10,000 sales of IRHPs were excluded by the FSA based on an inflexible and arbitrary “sophistication” test. The FCA commissioned an independent review of the IRHP redress scheme, led by John Swift KC. The review concluded that the exclusion of those customers was wrong because the decision was "without proper justification, consultation, analysis, or safeguards".
The FCA published its response to the review's findings on the same day it made the review public. The FCA decided that it would not take any further action because it did not consider it was wrong and believed "it would not be appropriate or proportionate to take further action.”
The APPG considers that the FCA's decision is flawed and unlawful. It asked the FCA to reconsider its decision. It has since filed a judicial review claim on the grounds that: (1) the FCA's decision is irrational and therefore unlawful; and (2) the FCA failed to consult with the excluded customers who were affected before making its decision.
What have we achieved so far?
Successful judicial review claims against regulators are not common, but after a full-day hearing on 29 June 2023, the APPG overcame the first hurdle when it was granted permission to proceed. The High Court found that both grounds should be determined at a full hearing. The judgment (reported at [2023] EWHC 1616 (Admin)) is here.
The Court noted that the case has wider implications about how a regulator must act that are of public importance, including:
the extent to which the FCA needs "clear and cogent" reasons to reject an independent review's conclusions;
whether it was fair for the FCA to make its decision without consulting with those that it knew would be affected by it; and
whether the FCA can "contract out" of its ability to take regulatory action by reaching an agreement with the banks.
What happens next?
The FCA served its Detailed Grounds of Defence and its supporting evidence – including witness statements – on 13 October 2023. A copy of the Defence is here.
We are now preparing our Reply, which is due to be served on 8 December 2023. We are also corresponding with the FCA regarding disclosure of relevant documents. These steps in the proceedings are resource-intensive.
As reported by The Times on 27 November 2023, the Defence confirms that the FCA attempted and succeeded in having Mr. Swift KC water down his conclusions. This and other issues raised by the Defence will be developed in our Reply.
Cost capping and fundraising
The APPG's claim relies entirely on fundraising through CrowdJustice. Its lawyers Hausfeld & Co. LLP and the barrister team instructed for the APPG are working on significantly reduced rates. The fundraising is used to meet these costs and other expenses incurred in the proceedings, such as court fees.
In a separate costs judgment (reported at [2023] EWHC 1662 (Admin), copy here), the High Court made an order limiting the APPG's exposure to adverse costs. This was necessary as the APPG would not otherwise be able to meet a costs order and therefore it could not have continued the proceedings. The Court ordered that the costs for both the APPG and the FCA will be capped at 40% of the funds that the APPG raises. Therefore, 40% of the funds raised to date are now being held in reserve to cover any costs that the APPG must pay if the claim does not succeed.
As a result, the APPG is seeking to raise at least another £100,000, to cover the costs of the next phase of proceedings, by the end of the year.
All Party Parliamentary Group on Fair Business Banking
July 6, 2023
Update on our case – Permission Granted
On 29 June 2023, the High Court granted the APPG permission to bring its judicial review, meaning that the case will now proceed to a full hearing. A copy of the judgment is available here.
The High Court also made a cost capping order. The High Court ordered that if either party to the proceedings is unsuccessful and ordered to pay costs, the costs will be capped at 40% of what the APPG is able to fundraise. Therefore, 40% of the funds raised to date and going forward will be held in reserve for this purpose. If the APPG is successful, those funds can be released to meet any of the APPG’s own outstanding costs. A copy of the judgment is available here.
The main CrowdJustice page has been updated with more information about the status of the case following these judgments and the new stretch target for fundraising.
All Party Parliamentary Group on Fair Business Banking
June 27, 2023
Update on our case - Permission Hearing
After almost 11 months waiting for a permission decision in the APPG’s application to judicially review the FCA’s response to the Swift Report the APPG has been informed that the permission hearing has been listed for all day on Thursday 29 June, being held in person at the Royal Courts of Justice.
The issues that the Court needs to determine at this stage are as follows:
- Should permission be granted for the claim?
- Has the claim been brought too late?
- Does the APPG have standing to bring the claim?
- Can the APPG act in litigation?
- Is the claim academic (under s 31 of the Senior Courts Act)?
- Will costs be capped?
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.
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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