Interest Rate Swap Derivatives

Bill Wiggin Excerpts

Thursday 24th October 2013 Commons Chamber

[Bill Wiggin (North Herefordshire) (Con)]

I draw the attention of the House to my declaration in the Register of Members’ Financial Interests.

We have a problem at the moment with the Financial Conduct Authority. It has been given the remit to act and the banks have set aside the money, but not enough has been done, or is being done, to ease the burden on British business. I have been contacted by many of my constituents about the FCA, the banks and the progress being made. Last night, that progress was slammed by none other than the chief executive of the FCA. Giving a speech at the Mansion House, Martin Wheatley said that

“the industry is deceiving itself if it imagines that a total of 32 offers accepted, totalling £2 million, is adequate progress.”

That is an admission, by the head of the FCA, that progress has been pathetic. With that quote, Mr Wheatley appears to be passing the burden squarely on to the shoulders of the banks. It is as if the FCA, and its predecessor the Financial Services Authority, had not been involved in the delays that have led to such inadequate progress. The FCA has the remit and the authority to speed up that progress. It is inextricably linked to that progress and the entire situation. As one of my constituents put it to me, it appears from the outside as if the

“FCA is unwilling to discuss anything with a bank customer, the British Bankers Association represents only the bankers, and the Financial Ombudsman Service remains buried in PPI cases.”

One mis-selling case in my constituency concerns a residential home. Thankfully, the business is still operating, but two of its owner’s other businesses have not been so lucky. The owner was mis-sold an interest rate swap agreement—in this case a “vanilla swap”—but the FCA scheme has been too slow in offering redress. Another constituent came to me today because he felt he was targeted by HSBC and sold an interest rate product that was wholly wrong for him and his business, but very profitable for HSBC.

The campaign group Bully-Banks, which I am sure has contacted many Members here today, highlights the precarious financial situation of the many businesses affected. People are up at night worrying about their bank and whether they will receive redress. As Mr Wheatley admitted, only 32 businesses have agreed redress out of the many thousands of businesses affected. That is not good enough. The country and the Government are focused on business for our economic recovery. We all know that more businesses mean more people in work, but with the FCA redress scheme operating at a snail’s pace, there are many thousands of businesses that will not be making those investments that we want them to; they will not be expanding or hiring more staff, until they receive redress and these matters are finally concluded.

The FCA’s chief executive contends that the banks are to blame for the speed at which redress is being offered to affected companies. According to several ongoing cases in my constituency, the banks are also to blame for a lot more. One business run by a constituent has already ended up in administration. It changed banks from HSBC to Lloyds TSB and was then badly advised. It seems that these two banks feature in practically all of my casework. My constituent was advised to set up a factoring account, which then disrupted his business, drove away his customers and caused problems with his cash flow. This was a high street bank once again showing a serious error of judgment. It poorly advised a business owner in my constituency, which led to that business being driven into administration. In this case, the Financial Ombudsman Service protected the bank after an investigation owing to a lack of documentation.

In yet another case of a bank not operating as it should, constituents of mine, attempting to grow their free-range egg and cider business, in the face of weak product prices and rising expenditure, received a support loan from their bank, Lloyds. Despite my constituents’ winning several high-profile contracts, however, Lloyds started to put what has been labelled as “unrelenting pressure” on the business. The bank gave my constituents a deadline to repay their loan and advised them to find an alternative bank. It then refused to release the ownership documents that would have allowed my constituents to sell a parcel of land, which would have repaid their debt to Lloyds and allowed them to move banks.

The Connaught Income Fund might be familiar to the House. I know that a number of parliamentary colleagues are involved in this matter. It is yet another case where the FCA and its predecessor, the FSA, have failed to take appropriate action. The fund was originally promoted, based on an information memorandum, as being of low risk. That memorandum now appears fraudulent, but was the FSA negligent to allow the fund to continue to operate, particularly when it became apparent that the memorandum was fraudulent? Several investors in the fund have gone even further, claiming that the FSA deliberately withheld information from the police and downplayed the serious nature of the fraud.

I am sure that the Minister will want to send a clear message from the Government to the FCA. We need the FCA actively to work to sort out these messes and to speed up its efforts. We need it to listen to the complaints and take serious action backed by meaningful compensation or fines. If this is not possible, perhaps he will confirm what changes in the law are needed to make it so. Finance is complicated, but the FCA is supposed to be sufficiently expert to appreciate what is going on and then have the teeth and nerve to act. Any bank must prefer to follow the FCA instructions—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I apologise to the hon. Gentleman. I am listening so intently to every Member’s contribution that I forgot to look at the clock.

[Caroline Nokes (Romsey and Southampton North) (Con)]

I congratulate my hon. Friend the Member for Aberconwy (Guto Bebb) on his tireless work to bring this matter to our attention, on having secured this second debate and ensuring that so many colleagues are here today, and on his enormous hard work as chair of the all-party group on interest rate swap mis-selling.

The last time we debated this subject, I was aware of only three constituents affected by interest rate swap agreements and described it then as a niche problem. Since then, however, the number of constituents affected—that I am aware of—has doubled to six. While the problem affects only a small number of constituents, the figures involved are eye watering—for two of my constituents, the sums run into several million pounds—but what has struck me is the features they all have in common: they are all small business people working hard to build up and expand their businesses. Whether in student lets, the leisure industry or farm diversification, they have all sought, ostensibly with the help of their banks, to grow their business, provide more employment and greater opportunity in the local area and, of course, help our economy. Some have quite impressive premises; others are literally run out of a garden shed or a room above the garage, but until they were unwittingly sold a product quite unsuitable for their circumstances, they had all enjoyed good relationships with their banks—those frankly are now in tatters.

Over the last few days, undoubtedly like other Members, I have suddenly started receiving updates from the banks about the progress they are making, setting out how they are compensating customers mis-sold these products and in my view trying to gloss over what have to date been quite unacceptable delays. I cannot repeat what the managing director of the Landish Group, which operates in my constituency and the constituencies of other hon. Members, said to me about the update I forwarded him from his own bank. The language was quite unparliamentary, so I will not repeat his words, but I can understand his frustration.

As we have heard, the banks have collectively spent more than £500 million on their own administrative costs, but in nearly 16 months they have delivered only a handful of decisions; and only 32 businesses have received any payments at all. It strikes me that a number of key issues must be addressed. First, on the speed of redress, I would like to reiterate what my hon. Friend the Member for North Herefordshire (Bill Wiggin) said about the snail’s pace of payments. It is painfully slow, but it was notable that as this debate drew close, there was a flurry of updates and self-congratulatory crowing from some of the banks about how they had made contact with 96% of their customers. Well done! How about paying back some of the money?

Secondly, we need to separate direct and consequential losses. One of my constituents had his decision from Barclays on 8 July. The bank admitted that he had been mis-sold and said that the swap would be torn up and exchanged for a simple cap at a cost of £29,000 and that, allowing for the cost of the cap, his direct costs—£1.35 million—would be returned, but four months on, he has seen no sign of that money. He placed a consequential loss claim at the beginning of August, which has not yet been accepted, declined or even discussed, and Barclays will not return the £1.35 million that it acknowledges it owes him until it has agreed the consequential losses, which it will not even talk about. I entirely endorse the call from my hon. Friend the Member for Aberconwy for the direct and consequential losses to be separated, so that the banks can crack on and refund some of the money owed, allowing businesses to invest, employ people and carry out redevelopment that might best take place at this time of year.

Thirdly, there is the thorny problem of what constitutes a sophisticated customer. Two of my constituents were judged to be sophisticated and so, along with 10,000 others, were excluded from the FCA redress scheme. One was deemed to be sophisticated despite his having no finance director; having never heard of a swap before he was sold one; doing his own accounts on a spreadsheet; having no in-house accountant; not being a limited company or even registered for VAT; and literally running his business out of a garden shed. I do not think it could get much less sophisticated if it tried.

[Bill Wiggin]

I am most grateful to my hon. Friend for giving way. I hope she needs the extra minute. Does she agree that an arbitrary limit on the number of employees is no way to determine sophistication in relation to financial products?

[Caroline Nokes]

I certainly agree with my hon. Friend about that.

All my constituent is asking for is the chance for what happened to his business to be reviewed, because of the situation he now faces—owing to the swap product, the fees, the charges and the circumstances of the product, an initial £3 million loan has spiralled to a massive debt of £9 million in just five years. The product far exceeds the term of the loan, time-wise. He has found himself having to work to the limit every day, seven days a week, just to make sure that he can make the repayments on the loan.

I was somewhat relieved today that my constituent did not turn up wearing a snail suit, which he was threatening to do—sadly, it was unavailable—but I am conscious that Bully-Banks is organising some sort of snail racing today. I have no idea whether it has taken place yet, but I can well understand why the snail has become the emblem of the campaign. I sincerely hope that the Financial Secretary will act to help these small businesses—which are, after all, the lifeblood of our economy, but have found themselves caught up in this nightmare—and make sure they are given swift and fair redress after all this time.