UK financial regulator reprimands banks’ handling of mishandling scandal

The UK’s financial regulator has not done enough to hold banks accountable for £2.2 billion in interest rate hedging mis-selling scandal began 20 years ago and used flawed criteria to exclude some customers from repair plans, an independent review has found.

Report by John Swift QC published on Tuesday strongly criticized the Financial Services Authority, the predecessor to the Financial Conduct Authority, for not being transparent enough with customers affected by the scandal and setting out milestones. unrealistic timing as to how long the remediation plan will take.

Swift’s review looked at the supervisor’s role in the handling of the mis-selling scandal between 2001 and 2011 and the subsequent compensation plan.

A person familiar with the process attributed the long gap between the scandal and the regulatory review process to the complexity of the report and the volume of data involved, the final report being handed over in September. December 2020.

The FSA is responsible for overseeing nine banks that mistakenly sold tens of thousands of small businesses to hedge against interest rate risk, leaving them with large bills when interest rates plummeted. The FSA was abolished in 2013 and the FCA assumed its responsibility for the UK financial services industry.

Swift found that most of the customers who qualified for the repair program performed better than they would have without it, but highlighted a few errors. These include the failure of the FSA and FCA to investigate enforcement actions against the banks involved.

“The FSA/FCA should have conducted a more in-depth investigation into the root cause of the mishandling before concluding not to pursue enforcement action,” the report said.

It added: “With the benefit of such further investigative work, the FSA/FCA would be in a much better position to assess whether to pursue enforcement action other than [compensation] and, if applicable, to ensure accountability where appropriate. “

The review also found that the FSA “did fall below the appropriate standard of transparency” in the way it set up its remedial plan, mainly because it failed to consult on how it was designed. . This included failing to tell the public that the plan ended up “significantly deviating” from what the regulator initially proposed to the banks involved.

Swift also criticized the FCA and its predecessor for ruling out 10,000 out of 30,000 cases in its review of the compensation program based on a “subjective criterion” of whether those customers had knowledge. and experience to buy the swap or not.

The FSA and FCA continue to be criticized for giving unrealistic timelines to the public about how long it takes to review eligibility for the program – in January 2013, the regulator promised to take 12 months to complete, but the exercise lasted until the fall of 2015.

The mistaken sale involved nine banks, including Royal Bank of Scotland, Bank of Ireland, Barclays, HSBC, Lloyds, Allied Bank of Ireland, Clydesdale & Yorkshire Bank, Cooperative Bank and Santander UK.

In a statement, the regulator said it was not wrong to exclude discerning customers from the compensation scheme. “Accordingly, the FCA will not seek to use its powers to claim any further compensation to be paid to the [interest rate hedging product] customers,” it added.

FCA President Charles Randell, who is stepping down next year, stressed that the FCA is “a very different organization from the FSA because it existed when these products were sold and when it established its remedial plan. ”, added: “We expect action today much earlier and more decisively. ”

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