FCA reviews: not the end of the story?

The story so far

In June 2012 the then Financial Services Authority, now Financial Conduct Authority, announced the implementation of a review scheme which would review the sales of all interest rate hedging products (IRHPs) sold by UK clearing banks to customers in the UK from December 2011, with a view to providing redress to those customers found to have been mis-sold. Considerable dissatisfaction with the outcomes from the FCA review scheme has repeatedly been expressed by customers whose claims were rejected in the review, which was being carried out by the banks themselves with assistance from externally appointed “independent reviewers” who included in their number KPMG.

Some of these dissatisfied customers’ previous attempts to challenge review outcomes included the pressure group Bully Banks taking steps to judicially review the FCA and what was said to be a “flawed” compensation scheme, and Holmcroft Properties Ltd’s success in being allowed to judicially review KPMG, the independent reviewer of Barclays’ compensation scheme. However, both these approaches are fraught with uncertainty and until very recently there had been no direct judicial scrutiny of any review outcome, one of the huge frustrations of the FCA review scheme being the lack of any appeal process.

Flawed implementation

Many customers who were sold interest rate swap products had experienced real frustration with the FCA review scheme, and in particular, the way in which the banks had conducted the reviews. Unlike the PPI compensation scheme, which has proved a general success for mis-sold customers, under the swap mis-selling all the power to decide on whether or not compensation should be awarded rested with the banks who mis-sold the products in the first place. Many unfair, arbitrary and frankly inexplicable review decisions suggested pretty clearly that the banks, sitting in judgment on their own misdemeanours, were not reaching objectively fair decisions and were taking advantage of their hopelessly conflicted position.

However, whilst it was apparent that the implementation of the review process was unfair and flawed, until August of this year it was unclear whether a claim could actually be brought against the banks in court for their failure to conduct the review fairly and reasonably.

Turn of the tide?

The position changed when the English High Court allowed Suremime Ltd’s claim to proceed against Barclays for the bank’s alleged failure to comply with the specifications it had agreed with FCA under the review scheme. The High Court decision in Suremime Ltd v Barclays Bank plc [2015] EWHC 2277 (QB) has shown that such a claim may be possible. Although it still remains to be seen whether Suremime is successful at the final hearing (the decision was at "strike-out" stage, so no evidence has yet been led), this has been a hugely significant step for those seeking to bring banks to book for the flawed way in which the FCA review has been carried out. The decision has demonstrated that if customers can show that their bank acted negligently when carrying out the review, in the sense of not applying the rules agreed with the FCA at the time the review was agreed between the FCA and the banks, then it may be possible to recover damages against the bank.

Timebar overcome

The Suremime decision has opened a door to claims by customers who believe that their bank has not fully complied with the terms of the agreements with the FCA under the review. The beauty of this new avenue to redress is that the prescriptive period for any such claim would only start to run from the date on which the unsatisfactory review decision was communicated to the customer. Put another way, these claims will not timebar for five years in Scotland from the date of the decision, or six years in England. Whilst many mis-selling claims themselves may be time barred due to the swaps having been sold more than five years ago in Scotland or six years ago in England, any claims against the banks for acting negligently under the review are still within the prescriptive period, given that the review started during the second half of 2012 and most final decisions were made in 2013 and 2014.

Jurisdiction in Scotland

Another very helpful consequence of the Suremime decision is that it may now be possible for Scottish customers to raise such claims in Scotland. Whilst that might not seem a terribly startling concept, the majority of Scottish interest swap customers were prevented from raising proceedings in Scotland for the mis-sale of their swap because swap documentation was written under English law. This meant greatly increased court fees (the fee, for example, for raising proceedings in England for a claim worth £300,000 is currently £10,000, whilst the equivalent Scottish fee is £202!), higher cost of representation and the inconvenience of having to litigate at a distance. However, as the wrong with which the bank was charged in Suremime is a negligent failure of a duty of care owed to the customer, it would seem perfectly possible to raise such a case in Scotland as the place of domicile of the bank in question, and/or the place where the harmful event occurred – which would undoubtedly be the case for all FCA reviews conducted in Scotland.

This might be something any customer who has been through the review process in Scotland and who is dissatisfied with the outcome – or indeed any professional adviser with clients who have been sold IRHPs – should bear in mind.