Campaigners and legal experts have called for more clarity on what level of redress businesses that were mis-sold complex financial products, called interest rate swap agreements, will receive.
The Financial Services Authority announced today that it would start a full review into mis-selling of the swaps, also known as interest rate hedging products (IRHPs), after a pilot study revealed that they had been mis-sold to small businesses in 90% of cases.
However, while the FSA said that redress for businesses who could demonstrate to their banks that they had been mis-sold would be "fair and reasonable" there was confusion over what this term actually meant.
Jeremy Roe, who is chairman of campaign group Bully Banks, a non-profit group of 1,000 businesses that claim to have been mis-sold IRHPs said the news from the FSA today was welcome, but that it was a "polo mint settlement", on the basis that there was still "a hole in the centre".
"The hole in the centre is what the definition of ‘fair and reasonable' redress is," he said. Of the 170 or so businesses included in the FSA's pilot, 90% of which were adjudged to have been mis-sold swaps, non had yet received an indication of how much redress they would receive or how it was calculated, he said.
He advised firms that believed they were affected by the mis-selling to join his organisation, before writing to their bank in light of the FSA's findings and suspend the swap. If the banks refused, he said, businesses should write to their MP, the FSA and Bully Banks.
Meanwhile, Simon Cottrell, senior partner at legal firm Goldsmith Williams, which is offering to handle claims on behalf of businesses, said: "We welcome the spirit of the FSA announcement but that is about all. Frankly it leaves far more questions than answers.
Cottrell also questioned the meaning of "fair and reasonable" redress and also asked what the deadline timescales of the review were going to be, since many of the SMEs involved were already approaching the limitation from a civil litigation perspective and risked being time barred.
He added: "The whole definition of who is a ‘non sophisticated' client is still very unclear. For goodness sake even many accountants have admitted they don't understand the first thing about these products. Are they ‘non sophisticated'? I don't think the bank could treat them as such. These are just a few examples of the shortcomings of this review."
"The FSA has broadened this definition slightly but we still feel that this will prevent many businesses who may fall marginally outside this test to be denied a right to redress on a product they did not understand. The FSA test which is based on the Companies Act test does not reflect whether a business understood what was in reality a highly complex financial derivative product. We feel each case should be based only on its only merits."
By James Stagg
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