Final phase of FCA swaps review delivers bitter blows
The Financial Conduct Authority (FCA) trumpeted the conclusion of its interest rate hedging product sales review today, declaring that all nine banks have completed their reviews and £1.1 billion has been paid out.
It would be wholly wrong if, in the final analysis, the FCA swaps mis-selling review is portrayed as a billion pound triumph for long-suffering small business owners and a noble tale of banks righting wrongs.
Beneath the headline-grabbing numbers, lurk unsettling facts and figures that tell a far more sombre story and raise important questions for the regulator and banks to answer.
There is a danger that unpalatable facts concerning the FCA will be brushed aside - this would be unjust, particularly in view of the prolonged anxiety and uncertainty experienced by swaps victims.
Massive rise in non-cap alternative offers
Specifically, the latest FCA data for the month of May show a massive rise in the proportion of redress offers that constitute an offer to replace swaps with ‘non-cap’ alternative products. Until last month, this category of redress (by far the least financially attractive outcome - other than of course no redress) represented only 5% of all offers made.
However, of the cases reviewed in May this jumped to 46%, a huge rise which raises fundamental questions over the review process. It would seem that these cases have been rushed through at the expense of fair and reasonable outcome.
Trend costs businesses dear
In effect, customers awarded non-cap redress, have one toxic swap replaced with another slightly less toxic swap. In one case, it meant that the prospect of a £220,000 settlement (if offered a cap) turned into the bitter reality of £1,900 redress. So, despite the bank admitting that the product had been mis-sold, the Independent Reviewer was persuaded that this was a reasonable outcome. Tough questions must be asked.
Full tear-up rate plummets to 26%
Latest data also showed that the proportion of full tear-up offers (the optimum outcome) as a percentage of overall offers accepted in May, plummeted to just 26% compared to 73% in respect of offers already accepted. Taken in aggregate, the May data presents serious cause for concern.
FCA should reveal facts behind figures
It is not immediately clear what lies behind these worrying trends. There should be uniformity of approach rather than a game of chance for companies seeking redress. The point is that we should not have to guess: the FCA should make public on a bank-by-bank basis, the types of verdicts reached by individual banks on a monthly basis.
Weasel words from banks
According to the FCA most banks have met its 12 month target for delivering redress letters to all but a handful of clients. RBS, which had more swaps cases than any other bank, reports that it has just 5% of cases still outstanding.
We are hugely sceptical of these official figures and suspicious of the tactics banks have used in order to tick a progress box for the regulator. Judging by our own caseload alone, 40% of our RBS cases are outstanding. It is hard to believe that our experience is atypical and what we hear elsewhere supports a view that ‘mopping up‘ is far from over.
We have RBS clients who have been waiting more than six months for an offer while in another case involving a different bank, a client has now waited 12 months.
Meaningless offer letters
Some banks are issuing redress letters that enable them to look like they are on track with cases but which contain no crucial details on the amount of redress payable. For a client, it is like being told you've passed an exam but the examiner is unable to tell you whether you got an A or just scraped a pass. How can a business owner make financial plans in that kind of vacuum?
No time for cheerleading
We strongly believe that the FCA should not be a cheerleader for the banks and should not allow them to obfuscate facts if they fail to meet a deadline. We advise all concerned to view the remainder of the FCA updates (which we believe should remain monthly, not go to quarterly as the FCA plans) with caution.
It has been remarked that there are three kinds of falsehood: the first is a 'fib,' the second is a downright lie, and the third and most aggravated is statistics.’ Our advice is to beware statistics and start asking more tough questions of regulators, banks and politicians.