Judicial review for rate swap compensation scheme allowed
A recent case heard in the Royal Courts has determined that a judicial review of the Financial Conduct Agency (FCA's) interest rate swap misselling scheme should go ahead.
All Square's Daniel Hall says this is a "key development" and could even lead to an overhaul of the current scheme.
Nursing home operator Holmcroft Properties brought an application for a judicial review into the scheme before the Royal Courts last week, against the FCA, Barclays and KPMG.
Their particular scheme was run by Barclays and reviewed independently by KPMG. The judge agreed that KPMG could be potentially considered a public body and therefore allowed the application for a judicial review to go ahead.
Daniel Hall, rate swap misselling expert, said that an independent reviewer such as KPMG is needed in the process due to the potential conflict of interest if for example a bank is reviewing whether a swap that it itself sold is missold.
"Therefore if there is a disagreement between the bank and independent reviewer, they will discuss, debate and come to an agreement before communicating the outcome to the customer.
"In this case, the FCA, Barclays and KPMG were arguing that that relationship between the bank and independent reviewer was purely a contractual relationship. Holmcroft Properties were arguing that it is not, as the role and the task KPMG is undertaking is in the public interest. For example, it is performing the task of a public body," Hall said.
And Judge Parker agreed: "It's clear from everything we have heard today that this matter is of very considerable public interest," they said.
Therefore a full judicial review of the scheme can go ahead. However, Hall said that this will take some time in going ahead. But when it does, its outcomes may be significant.
As Hall says: "This is a key development in swaps misselling because it could result in a complete overhaul of the scheme. The results have been very mixed, some businesses – a minority – have come through happy with the end result, but the vast majority are unhappy or disgruntled."
"What this review application means is that the scheme could be overhauled and a case of starting over again."
Holmcroft Properties was originally awarded about £500,000 under Barclays’ compensation scheme. But, it was not paid for other losses that contributed to the loss of properties after the cost of paying its obligations under its swap rose.
Hall added that there has been a lot of disgruntlement about various aspects of the FCA redress scheme - as the Treasury Select Committee report showed last month.
Some aspects that were the subject of dissatisfaction included alternative hedging products being offered as part of the redress scheme. This reduces amount of compensation paid - these could be questioned. In addition the way banks and the independent reviewers are assessing consequential loss claims may be re-examined.
"Judging from the stats coming through, the vast majority of these are not being upheld and if payments are being made, it is in small amounts," Hall said.
He added that accountants with clients being offered compensation under this scheme by the banks should potentially go back to the bank and ask them to hold off as there is a judicial review in due course. "Can they accept the full offer when this is underway in the background?" he asked.