FSA Announces Another Failure to Discipline

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Posted in:Banking and Finance|June 26, 2014 | Join the mailing list

On 25th June 2014 the Financial Conduct Authority announced that it had found that the pay day lender Wonga had breached rules by sending “fake” solicitors’ letters to customers who owed them money, and had even charged solicitors fees for these fake solicitors. 
Wonga also overcharged many customers.

The FCA announced that it was not fining Wonga.  The FCA also has not disciplined any directors, executives or employees of Wonga.  No, they announced that Wonga would a) refund the “solicitors’” fees and give £50.00 compensation to each customer.  No fine
and no disciplinary proceedings.

The FCA has argued that it does not have the powers to fine or discipline because the company was regulated by the now defunct Office of Fair Trading.

What is the general criticism?  

Berg has been assisting clients with interest rate swap hedging product matters for a number of years.  Since 2012 the FSA and now the FCA has found that level of regulatory breaches during the sales of IRHP is massive.  By 30th May 2014 they had found 92%
of all sales had one or more regulatory breach.  92%!  That means that the banks over-all simply ignored regulation.

What has the FCA done about this?  One would naturally expect the sales staff to be severely disciplined, directors and other executives form the banks disciplined and the banks themselves fined and potentially have their ability to trade such products revoked
where abuse was rampant.  That is what one would expect.

Instead, the FSA, as it then was, simply ordered the banks to refund the cash flows of the IRHPs and offer compensation for other consequential losses.  Not once has any body or any bank been disciplined for this astonishing failure that has brought many SMEs
to their knees, and made others insolvent.  And not one person has been prosecuted for fraud, nor has a bank faced any criminal or regulatory proceedings.

Further to that, the Banks have now decided that they will not pay ANY consequential losses in the FCA review into IRHPs.  Not a single person Berg has spoken to have been offered more than a three digit consequential loss claim settlement and those that got
the two or three digit refunds are just refunds of bank fees incurred as a result of the cash flows.

On top of this, the FSA agreed to exclude people from the review at the behest of the banks by imposing an arbitrary £10million test, which has seen an additional 5,000 SMEs removed from the review process.  What has the FCA done to correct the refusal to pay
consequential losses?  Again, nothing.  They have just said that the independent reviewer has agreed everything.  But has a single person seen what the banks have been passing to the independent reviewers?  No, the banks and the FCA will not let anyone have
over-sight of this.

Are we seriously suggesting that not a single body suffered losses as a result of IRHPs during the 2009 to 2014 period?  Not one?  Or is it simply a case that the FCA has no spine and refuses to do its job?

The Banking Standards Commission in 2013 produced a report saying the whole Financial Services and Markets Act scheme should be removed.  The Government responded agreeing.  What has happened since then?  A suggested “council” with absolutely no powers has
been recommended to over-view banks self-investigated summaries of their positions, with no right of investigation by the council, nor any powers to discipline banks.  As such, to date, the Government has done nothing.

The FCA’s punishment of the disgusting things that Wonga has done to the most vulnerable people in society is symptomatic of the over-all failure by the FCA to demonstrate and evidence actual policing of Banks that since 2006 have caused hundreds of billions
of pounds of losses to SMEs and individuals.  Those failures continue, and the review into the sale of IRHPs, and specifically the banks’ refusals to pay consequential losses shows how powerless individuals and SMEs are against the growing demands of banks
to replace their lost money.

For more information about any of the above or for practical advice on this or any other aspect of banking and financial disputes, please contact
Kalvin Chapman
of the Berg Banking Litigation Team on 0161 833 9211 or email him at

(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice should
be obtained before taking, or refraining from taking, any action as a result of this article.)

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