13th March 2015
The Treasury has demanded a review into the City regulator’s multi-billion pound redress scheme to compensate those mis-sold interest rate swaps.
In a letter to the Financial Conduct Authority (FCA), Treasury secretary Andrea Leadsom asks whether the redress scheme is fair to small business who were mis-sold interest rate swaps on a large scale.
Interest rate swaps were designed to hedge against the risk of interest rate movements on loans. Some of the hedges were a simple cap that fixed an upper rate on a loan while others were more complicated, including ‘structured collars’ that fixed interest rates within a band while introducing a level of interest rates speculation.
A subsequent review of the sales of interest rate swaps, which were sold mostly to small and medium-sized businesses, revealed 90% had been mis-sold.
While £1.8 billion in redress has been paid out already, the Treasury is critical of the redress scheme.
The Treasury committee led by Leadsom said the FCA should ‘collect the information necessary to establish whether there are systematic failures in the redress scheme’ and called for it to ‘publish its findings, a summary of the complaints it has examined and take any action it decides is appropriate to ensure that all customers receive fair and reasonable redress’.
Leadson added that a review of the redress scheme should be overseen by a non-executive director at the regulator.