Interest Rate Compensation Scheme Faces Judicial Review

Interest Rate Compensation Scheme Faces Judicial Review

Interest Rate Compensation Scheme Faces Judicial Review

Interest Rate Compensation Scheme Faces Judicial Review

Last Friday, Mr Justice Parker ruled a nursing home operator could bring a full judicial review of high street banks’ £1.8bn scheme, which compensated victims who had been mis-sold interest rate swaps.

The judge agreed that KPMG, an independent reviewer of Barclays’ redress programme, could be viewed as a public body and will therefore become the subject of a judicial review.

Mr Justice Parker, who did not rule on the merits of each side’s argument, commented: “It’s clear from everything we’ve heard today that this is a matter of very considerable public interest”.

In 2012, The Financial Conduct Authority (FCA) required nine bankers to nominate reviewers for a compensation scheme. To date, 11,000 companies have been awarded £1.8bn in redress for interest rate swaps, which were billed to protect businesses against interest rises; however, this led to significant losses for various firms when interest rates fell.

Solicitors for Holmcroft Properties argued due to banks, including Barclays, setting up compensation programmes at the request of the FCA, KPMG, as the reviewer, had a public law duty “woven into the fabric” of its task.

The FCA, Barclays and KPMG challenged the application at the Royal Courts of Justice, stating the relationship between the bank and accountancy group was a matter of contract, and had no wider public law duty to act fairly.

No date has been scheduled for the full judicial review. This type of hearing can order a public body to reconsider a decision if was irrational, outside of its power, or unfair.

James Oldnall, a partner at Mischon de Reya, who represents Holmcroft, commented: “In terms of the implications, this should certainly lead to banks and independent reviewers prioritising fairness. From the perspective of our client, it means we now have the opportunity to argue a case for appropriate compensation that is commensurate to his loss.”

KPMG and the FCA declined to comment on the judicial review, whilst Barclays was unavailable for comment.

Holmcroft Properties was initially awarded approximately £500,000 under Barclays’ compensation scheme, but was not paid for other losses that impacted to the loss of properties after the cost of paying its obligations under its swap ballooned.

Approximately one in three customers were excluded from the redress programme as they bough swaps worth over £10m, their businesses earned a yearly revenue of £6.5 billion or fit another criteria, and so they were viewed as sophsticated enough to understand the product they purchased.

Politicians on the Treasury Select Committee have publicly criticised the compensation scheme for numerous delays and exclusions, which have left hundreds of UK businesses dissatisfied.

Andrew Tyrie, who chaired the committee, stated: “Firms feel they have been doubly let down: first by the mis-selling and now by the redress process. They may have a point. The Committee remains seriously concerned about the scheme’s effectiveness and lack of transparency.”

In addition, the Bully Banks lobby group is currently preparing a legal case against the compensation scheme.

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