The Financial Ombudsman Service (FOS) was set up under the Financial Services and Markets Act 2000 to resolve individual disputes between consumers and financial businesses. It has just published its 2012/2013 annual review of consumer complaints. We focus on the comments on Interest Rate Swaps mis-selling, an area in which LEXLAW’s Financial Services team proudly excel (lexlaw.co.uk/swaps).
General overview of the FOS 2012/2013 Report
The FOS reports a 92% increase in new cases that it has taken on in the last year, over 508,000. The sale of payment protection insurance (PPI) accounted for almost three-quarters of the complaints dealt with by the FOS, with 2,000 new cases being referred to it each day.
FOS Comments on Swaps Mis-selling
On interest rate hedging products (IHRPs – i.e. Derivatives such as Interest Rate Swaps), the FOS refers to it’s action on 24 October 2012 when it published two provisional decisions relating to interest-rate hedging products, setting out the issues involved in disputes over “swaps” and “collars” between banks and smaller businesses (SMEs). The aim was to explain the ombudsman’s general approach to complaints (it is noteworthy however that no redress was actually set out and that the FOS previous complaints on this area were not made public and were not reasoned in the same way).
The FOS notes that it received 258 complaints from businesses about interest rate hedging products sold by banks in 2012/13. However, the FOS stated it is generally unable to take on cases where a complaining business does not meet the definition of a microenterprise in the FCA rules (an enterprise that employs less than ten people and has a turnover or annual balance sheet that doesn’t exceed €2 million) such as to qualify as an eligible complainant for the purposes of invoking the FOS’ jurisdiction.
Therefore the FOS could not deal with the vast majority of these complaints. Furthermore, the compensation claimed by businesses in these cases significantly exceeds the £150,000 maximum award that the FOS has the power to order by way of compensation to customers.
FSA rejected an FOS IHRP Swaps Review
In January 2013 the FSA (now the FCA) rejected the FOS’s suggestion that it should establish a special scheme allowing the ombudsman service to deal with complaints about interest-rate hedging products brought by businesses that would otherwise be outside the FOS’ jurisdiction.
It is interesting to note that the FSA rejected this following consultation with stakeholders, and said that it had decided it was not appropriate to have the FOS set up this scheme. Instead the banks agreed to review themselves their past business sales of IHRPs.
The Appeal Body for FCA Review Appeals
It is also noted that in spite of this rejection of the FOS special scheme, the FOS is the FCA’s intended last resort for appeals from the banks own regulatory review process in respect of past sales of IHRPs, as stated here (from the FCA website):
If, having had your case reviewed, you are not satisfied with the outcome or the level of redress you have been offered; you may be able to refer your complaint to the Financial Ombudsman Service. It will independently review all eligible cases.
If you believe you have incorrectly been classified as a ‘sophisticated’ customer and have, therefore, not been eligible for redress, you can complain directly to your bank. If you are then not happy with your bank’s response you may be able to refer your complaint to the Ombudsman.
Bank customers with IHRPs may wish to protect themselves from the possibility of their legal claims becoming time barred by virtue of limitation (generally six years from the date of the mis-selling such as the presentation of IRHPs by the bank) so that their legal claims can be pursued if necessary or advised. This would avoid the unfortunate position of a business having no final resort except with the Ombudsman.