SMEs still at risk despite FSA announcement

Published: 31/01/2013

Despite compelling evidence surrounding the sales practice of interest rate swaps to small and medium-sized enterprises (SMEs), there remains real uncertainty regarding the Financial Service Authority’s redress scheme.

Following intensive work by the FSA, the pilot review of sales has revealed that nine out of 10 cases did not meet regulatory requirements.

While the FSA has suggested a significant proportion of the pilot scheme is likely to be eligible for some degree of redress, there has been an apparent reluctance to provide any transparency of what those amounts may be or what, in fact, constitutes “fair and reasonable” compensation.

The announcement has also been severely criticised for its lack of clarity surrounding timeframes and deadlines which could be real detriment to clients approaching their limitation expiry date. There is a very real risk that these clients could now be left at the mercy of lenders, forced to take any offer of redress because the legal avenue of litigation will be closed.

Simon Cottrell, Senior Partner at Goldsmith Williams, explains what the announcement really means for affected SMEs:

“While we do welcome the sprint of the FSA announcement, we are again left with more questions than answers.

“With little clarity on expected levels of compensation or even a broad definition of what constitutes ‘fair and reasonable’ redress as well as a failure to set any timeframes or deadlines means SMEs remain in the dark as to the future of their business.

“We also have concerns regarding the appointment of an ‘independent reviewer’ who, despite the title, will be appointed by the bank, a move which is likely to raise an eyebrow or two from the sceptics among us.

“It is also the issue of causation; even if the bank breached every regulation in the book, redress would still be reliant on the client proving causation, that they would not have entered into the product but for the breach.”

When asked about the next course of action floundering SMEs should take, he was adamant:

“The best way for SMEs to gain access to justice and secure compensation which adequately addresses the damage this latest mis selling scandal has brought is to seek specialist legal representation and quickly. The statute of limitations will soon start to impact on the claims of some of these businesses – affected business owners should instruct a lawyer without delay.”

Content correct at time of publication