Treasury concerned over 'unfair' FCA redress scheme

In a letter to FCA chairman John Griffith-Jones, Treasury economic secretary Andrea Leadsom stressed that the scheme would benefit from "independent oversight" by a suitable non-executive director.

In a report on Conduct and competition in SME lending, published on the 10th of March, the Treasury Committee said:

"In particular, the FCA should collect the information necessary to establish whether there are systemic failures in the review. The FCA should publish its findings, a summary of the complaints it has examined, and take any action it decides is appropriate to ensure that all customers receive fair and reasonable redress."

The FCA has maintained that the redress process has worked as intended, but the Treasury have argued that there have been "complaints that the process of the IRHP review falls short of delivering fair and reasonable redress." The Committee has not yet determined whether these complaints are examples of isolated exceptions to an adequate process, or are signs of a wider, systemic problem with the review.

The latest FCA update on the interest rate hedging product misselling scheme revealed that 11,000 consumers have now received redress payments of £1.8billion, including more than £365 million to cover consequential losses. The final date for new entrants to join the scheme is 31 March 2015.

However the Treasury Committee pointed out that a £10 million cap on the size of an IRHP has excluded approximately one third of the largest IRHP review participants. The Committee have now urged the FCA to explain its decision-making on this cap, including whether this represented a "concession to bank lobbying".

Andrew Tyrie MP, Chairman of the Treasury Committee, said:

“Many small businesses have been badly hit by the complex terms of the IRHPs offered by their bank. A significant number of those firms who were mis-sold these hedging products feel that, having been ripped off in the first place, they have now been treated unfairly again by the FCA’s IRHP redress scheme.

“It is far from clear that the FCA’s scheme has delivered fair and reasonable redress to all the businesses affected. The FCA needs to do much more to demonstrate that this process is credible and has not unduly favoured the banks.

“As part of this work, the FCA should collect the information necessary to establish whether there are systemic failures in the review. This would benefit from independent oversight. It should publish its findings. Greater transparency is crucial in order to ensure that those SMEs mis-sold these products receive – and are seen to receive – appropriate redress. The Financial Services Act provides for the Treasury to require for this type of work to be done. But hopefully this won’t be necessary.”