Lawsuit Alleges UK’s FCA Unfairly Excluded Some Businesses From Compensation

A lawsuit in the United Kingdom alleges that the country’s Financial Conduct Authority (FCA) unfairly “shut out” some small businesses when compensating customers who were mis-sold interest rate hedges between 2001 and 2011.

The lawsuit centers on an agreement formed by the FCA’s predecessor, the Financial Services Authority, in which nine banks compensated thousands of those customers a total of over 2.2 billion pounds (about $2.8 billion), the Financial Times reported Tuesday (Dec. 10).

The products the banks sold promised small businesses protection from rising interest rates but ended up costing them when interest rates plunged, according to the report.

In the agreement for compensation, the FCA and its predecessor excluded about 10,000 of the 30,000 cases, saying those customers were “sophisticated” and had the knowledge and experience needed to buy the products, the report said.

The lawsuit contends that the criteria used in the compensation plan was subjective and the FCA’s decision to exclude some cases was unreasonable, per the report.

The FCA’s lawyer argued that the regulator adopted its plan to provide redress in a faster and fairer way than an enforcement action might provide, adding that the FCA decided it should not use its limited resources to pursue a two-decade-old case and try to force the banks to compensate more customers, according to the report.

The legal challenge was crowdfunded and brought by a group of members of Parliament and peers called the All-Party Parliamentary Group on Fair Banking, per the report. The hearing is scheduled to end Wednesday (Dec. 11).

When announcing the results of a review of the Financial Services Authority’s actions in the case, the FCA said in December 2021 that the review found that most customers eligible for the plan probably obtained better outcomes than they would have seen otherwise, that the plan provided help to the small businesses that needed it most, and that it was not wrong to exclude the more sophisticated customers.

Charles Randell, who was head of the FCA at the time of the review, said in December 2021: “The FCA today is a very different organization from the FSA as it existed when these products were sold and when it established the redress scheme. We would expect to act far sooner and more decisively today.”

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