The FCA is still leading businesses up a blind alley

Originally featured in Business Zone

Last week, saw Rhino Enterprises try to force Barclays to explain why it pushed the business into administration, while the recent Suremime Limited and Barclays Bank plc case has been seen as a cause for hope.

This case involved the business defeating an application by the bank to strike out its claim on the basis that it was out of time. The arguments have yet to be tested fully but at least they have been allowed to go forward.

While both these cases rumble on, the Financial Conduct Authority (FCA) continues to lead many more businesses up a blind alley with regard to how they can possibly achieve a fair result in taking on the banks.

Tracey McDermott, the new director of supervision at the FCA, commented at the FCA annual conference on 22 July that businesses dissatisfied with its review into the mis-selling of interest rate hedging products, could ‘seek compensation through the courts’.

This is why the Suremime case is important, because the original advice from the FCA was that businesses didn’t need to pursue redress through the courts or take legal advice and should instead await the outcome of the review, and the implied redress the review offered.

The process was said to be clear and straightforward.  In reality, this has not transpired to be the case.
The problem is that because of delays to the review, which is still ongoing despite the fact that it should have come to an end in May 2014, many businesses now find themselves with the dual problems of not having been properly compensated through the review, and being out of time to pursue litigation.

This is particularly the case as in the main; the banks have failed to pay out consequential losses.  Thus, the review has paid out less than £2 billion in compensation, compared to the original estimate of potential liability that the banks would have to pay out of over £30 billion.

Litigation is expensive – particularly complex litigation of this type which will require expert evidence from forensic accountants, derivative experts and so on.

Just to issue the claim would incur a court fee of £10,000, and consultation on increasing the fees further to £20,000 was announced recently.  A business may have very real grounds for complaint and a strong legal case, but if they can’t afford to pursue it, it will go no further.  As such, the FCA’s comments are simply not a realistic appraisal of the situation.

The solution to the problem should be to revisit the review and in particular the second phase which has dealt with consequential losses. Yet the only firm announcement on this at the moment is from the banks themselves.

RBS has, ever so dutifully, announced another review of its GRG division, a short time after the £1.5m taxpayer-funded Clifford Chance whitewash, whereas Barclays is apparently trying to close the review process on its own terms – while the FCA does nothing.

With Parliament enjoying summer recess, it seems the banks are making hay while the sun shines, at the expense of small businesses. 


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