LEXLAW Solicitors & Barristers
The High Court permitted a judicial review of the FCA’s Interest Rate Hedging Product (IRHP) swaps mis-selling review scheme. The case challenges the fairness and adequacy of the FCA’s redress process, arguing it fails to provide proper compensation and independent oversight. This decision marks a significant step for affected SMEs seeking accountability and more effective remedies for mis-sold swaps under the FCA scheme.
RBS is reviewing past sales of 1,800 Enterprise Finance Guarantee (EFG) loans amid concerns that SMEs in financial distress were not properly informed of the risks. Many borrowers did not realise they remained liable for 100% of the loan despite the government’s 75% guarantee. Banks also often sought inappropriate personal guarantees and charges on primary homes.
The Treasury Committee report criticises conduct in SME lending, focusing on four key areas: FCA’s IRHP mis-selling review, Tailored Business Loans (TBLs), hidden swaps embedded in loans, and RBS’s Global Restructuring Group (GRG). The report finds systemic failings, lack of transparency, and inadequate customer protections. It calls for stronger regulatory oversight, better redress schemes, and reforms to prevent banks exploiting SMEs through complex financial products and aggressive recovery tactics.
The Civil and Family Proceedings (Amendment) Fees Order has been approved in the House of Lords. This massively increases the court issue fee to £10,000 from £1,920 (raised last year from £1,670).
The FCA’s confidential agreement with major banks set up the Interest Rate Hedging Product (IRHP) Review to address mis-selling claims. The Treasury Select Committee criticized the scheme for potentially allowing banks to avoid meaningful redress for SMEs, favouring banks over customers. The agreement details the redress process, but concerns remain about fairness and effectiveness. The Committee continues to scrutinize the review and its impact on SME lending.
A KPMG whistleblower revealed that RBS pressured the FCA Interest Rate Hedging Product (IRHP) redress scheme to reduce compensation payouts, often challenging claims over £750,000. RBS preferred offering alternative products rather than cash refunds and frequently argued sales were compliant to avoid redress. The FCA’s review was criticised for lacking independence, allowing banks to self-assess wrongdoing, causing unfair delays and rejections of consequential loss claims. Many SMEs have been short-changed due to these flaws, highlighting the need for urgent legal advice and challenge of unfair redress offers.
The High Court judgment in Crestsign Ltd v NatWest & RBS ( EWHC 3043) deals with swaps mis-selling claims by Crestsign Limited against the banks. The case examined whether the banks properly advised Crestsign on interest rate hedging products (swaps) and complied with regulatory obligations. The judgment addresses issues of mis-selling, suitability of advice, and breaches of conduct rules. It forms an important precedent in derivatives mis-selling litigation against major UK banks.
Clydesdale and Yorkshire Banks have now begun a review of past sales of fixed rate loans often sold as Tailored Business Loans (TBLs). These are Fixed Rate Loan wrapper products with embedded derivatives.
HMRC has issued tax advice leaflets for banks to hand to customers receiving redress from mis-sold Interest Rate Hedging Products (IRHP), urging correct tax return reporting. Affected banks must review sales since 2001 under FCA supervision, leading to customer compensation. Redress payments, consisting of basic redress, 8% compensatory interest, and consequential losses, are generally taxable income or subject to capital gains tax. Individuals should account for tax deducted from interest. HMRC recommends consulting an accountant for complex scenarios.
The Royal Bank of Scotland’s “Bad Bank” known as Capital Resolution (RCR) manages GRG, IRHP, and West Register portfolios involving distressed SMEs and mis-sold interest rate hedging products. RCR’s role is to isolate risky and non-performing assets, including businesses pushed into distress by GRG to facilitate asset acquisition at discounted rates. The unit has been criticised for poor treatment of SMEs, lack of transparency, and aggressive recovery tactics.